Nutrient Based Subsidy Scheme

The government recently said that it plans to appoint an independent agency to assess the price behaviour of crop nutrients after the introduction of nutrient-based subsidy (NBS) scheme in 2010. It’s worth note that there has been unprecedented hike in prices of non-urea fertilisers after the introduction of NBS scheme. The minister of state for fertilizers even said that the NBS policy should be withdrawn and the previous system of fixed MRP should be restored. Here we discuss the matter in bit length, analysing what went wrong with this scheme.

What are the macronutrients and micronutrients?

A fertilizer is any organic or inorganic, natural or synthetic material added to soil to supply one or more plant nutrients essential to the growth of plants. These fertilizers provide six macronutrients and eight micronutrients to the plants for well balanced growth.

• Six macronutrients: nitrogen (N), phosphorus (P), potassium (K), calcium (Ca), magnesium (Mg), and sulfur (S);
• Eight micronutrients: boron (B), chlorine (Cl), copper (Cu), iron (Fe), manganese (Mn), molybdenum (Mo), zinc (Zn) and nickel (Ni) (1987).

The macronutrients are consumed in larger quantities and that is why they make the bulk of the fertilizers. For sustained agricultural growth and to promote balanced nutrient application, fertilizers need to be made available to farmers at affordable prices.

Which fertilizers are controlled in India?

In India, Urea is the only controlled fertilizer, which is sold at statutory notified uniform sale price. The Phosphatic and Potassic fertilizes are under a decontrolled regime and are sold at indicative maximum retail prices (MRPs).

What is the subsidy regime in fertilizer industry?

The problems faced by the manufactures in earning a reasonable return on their investment with reference to controlled prices, are mitigated by providing support under the New Pricing Scheme (NPS) for Urea units and the concession Scheme for decontrolled Phosphatic and Potassic fertilizers. The statutorily notified sale price and indicative MRP is generally less than the cost of production of the irrespective manufacturing unit. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

What is the New Pricing Scheme III or NPS-III for Urea?

Till 2003, the subsidy to urea was under the provisions of the Retention Price Scheme (RPS). Under RPS, the difference between retention price (cost of production as assessed by the Government plus 12% post tax return on networth) and the statutorily notified sale price was paid as subsidy to each urea unit. Later the RPS regime was dismantled and a Concession Scheme for urea units based on the prices of feedstock used and the vintage of plants was introduced, which was called New Pricing Scheme or NPS. This scheme was introduced from April 1, 2003. It had various pahses like NPS-I (2003-2004), NPS-II (2004-2006) and NPS-III (2006 onwards).

What are the problems in the NPS?

The problem with this scheme was that the fertilizer companies started bleeding due to fixed Urea prices and rising cost of Inputs such as Natural Gas and Naptha. As much as 80% of India’s production of urea is gas-based. The price of Urea was increased by 10 per cent from 1st April 2010. After that in October 2012, the government agreed to hike the prices of urea-based fertilizers by Rs. 50 per tonne. This was the last increase in Urea Price. With this increase, urea-based fertilizers will now cost Rs. 5,360 per tonne, still a lot cheaper than potash and phosphate fertilizers, which cost Rs. 24,000 per tonne.

Thus we see that Urea is available at such a cheap price that people not only started unbalanced use of this fertilizer but also Urea was illegally exported to neighbouring countries. So, the New Pricing Scheme III needed a modification so that the companies are allowed to hike urea prices and also there can be a check on the imbalanced use of soil nutrients and reduce government’s subsidy burden. Earlier, the government had plans to decontrol the urea sector by bringing it under the nutrient based subsidy (NBS) scheme. A committee headed by Planning Commission member Saumitra Chaudhary had also suggested freeing of the sector. But somehow, the political class could not take bold steps and Urea is still under price control regime. On January 23, 2013, the government has formed a GoM, which will look into the modified New Pricing Scheme (NPS) III for urea as well as consider earlier proposals for de-regulating the sector. The constitution of the GOM comes in the backdrop of stiff resistance by Fertiliser Ministry in raising urea prices and bringing the sector under the nutrient based policy (NBS) like P&K fertilisers.

What is the Nutrient Based Subsidy (NBS) scheme for other fertilizers?

Government of India is implementing Nutrient Based Subsidy (NBS) policy w.e.f. 1st April 2010. The notable features of this scheme are as follows:

• This scheme is for 22 grades of decontrolled fertilizers namely DAP, MAP, TSP, DAP Lite, MOP, SSP, Ammonium Sulphate and 15 grades of complex fertilizers.
• These fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
• Additional subsidy is also provided on the fertilizers fortified with secondary and micronutrients as per the Fertilizer Control Order such as Boron and Zinc.
• The subsidy given to the companies is fixed annually on the basis of its nutrients content (i.e. Nitrogen, Phosphate, Potash and Sulphur).
• Under this scheme, Maximum Retail Price (MRP) of fertilizers has been left open and manufacturers/marketers are allowed to fix the MRP at reasonable level.

What are the problems of the NBS Scheme?

The objective of this scheme was that it would foster balanced use of the fertilizers and thus would improve soil health and also reduces the government outgo on fertiliser support. The policy has been so far failed to achieve the first objective of improving the soil health. The reason is the prices are skewed towards low prices of Urea.

Role of Urea in Soil
The numerous soil bacteria possess the enzyme urease, which catalyses the conversion of the urea molecule to two ammonia molecules and one carbon dioxide molecule, thus urea fertilizers are very rapidly transformed to the ammonium form in soils. Among soil bacteria known to carry urease, some ammonia-oxidizing bacteria (AOB), such as species of Nitrosomonas, are also able to assimilate the carbon dioxide released by the reaction to make biomass via the Calvin Cycle, and harvest energy by oxidizing ammonia (the other product of urease) to nitrite, a process termed nitrification. Then there are Nitrite-oxidizing bacteria, especially Nitrobacter, which oxidize nitrite to nitrate, which is extremely mobile in soils and is a major cause of water pollution from agriculture. Ammonia and nitrate are readily absorbed by plants, and are the dominant sources of nitrogen for plant growth.

How the NBS Scheme could not improve the Soil Fertility?

The above discussion makes it clear that on the one side we have Urea available for Rs. 5360 per tonne, while on the other hand we have potash and phosphate fertilizers, which cost Rs. 24,000 per tonne.

• Urea, as we know, is destined for use as a nitrogen-release fertilizer. Urea has the highest nitrogen content of all solid nitrogenous fertilizers in common use.
• The skewed price regime led to skew in the use of the fertilizers. We use the NPK Ratio to label fertilizer based on the relative content of the chemical elements nitrogen (N), phosphorus (P), and potassium (K). The ideal NPK ratio for healthy soil should be 4:2:1. But one of the study conducted by the Fertiliser Association of India says the nitrogen-phosphorus pot-ash (NPK ) ratio in 2011-12 was 10:4:1. There can be two reasons for such a skewed ration, one is that the K and P fertilizers could not reach farmers in time, second is that there is indiscriminate use of Urea.
• This data is of one year later than the launch of NBS scheme. This indicates that the scheme is not being implemented properly. The experts blame the partial NBS scheme for distortion. The rapid increase in phosphorus and potassium prices, along with the control over prices of urea is creating the problem. This growing imbalance in the use of nutrients is a very bad sign for agricultural productivity in the long run.

What is current position?

The government now plans to appoint an independent agency to assess the price behaviour of crop nutrients after the introduction of nutrient-based subsidy (NBS) scheme in 2010. The fertilizer companies say that if government really wants a solution, it should cap the quantity of fertiliser to be subsidised and let the price of the remaining quantity be driven by market forces.(Target 2013/CGS-16 Content)