By allocating an additional Rs 65,000 crore towards fertiliser subsidy for 2020-21, over and above the already-budgeted Rs 71,309 crore, the Narendra Modi government has ensured two things. The first is fully covering the current fiscal’s estimated subsidy requirement of Rs 80,000-85,000 crore. The second is clearing the past subsidy dues of around Rs 48,000 crore. The wiping-out of all outstanding payments to the industry is important, especially in the context of the recently approved production-linked incentive scheme for a host of sectors. The success of this programme — which seeks to attract manufacturing investments by offering cash incentives totalling Rs 200,000 crore over five years on incremental sales — rests on the government’s credibility in honouring its payment commitments. Fertiliser firms are today forced to sell their products at below what it costs to produce or import them. If the government does not pay the difference as subsidy in full and on time, investors in other sectors, too, are bound to ask: Will a similar fate befall us? What if the promised incentives don’t come?
Now that the problem of fertiliser subsidy arrears is, hopefully, history, the Modi government should focus next on reform. This must go beyond just checking illegal diversion of subsidised material through neem-coating of urea, releasing payments to companies only after sales to farmers being registered against biometric authentication or even capping the number of bags anyone can buy. The nutrient-based subsidy (NBS), introduced more than a decade ago, was a good idea. Under it, the subsidy on any fertiliser is linked to its underlying nutrient content — be it nitrogen, phosphorus and potash or sulphur, zinc and boron. However, NBS has failed simply because urea has been kept out of it. With the government still fixing its maximum retail price (MRP) — it has been raised by hardly 11 per cent since April 2010, while going up 150-300 per cent for other decontrolled fertilisers — the current NBS has actually worsened the soil nutrient imbalance resulting from over-application of urea.
The Modi government should, first and foremost, bring urea under NBS. That would mean increasing its MRP from Rs 5,360 to Rs 9,000 per tonne, which roughly corresponds to the per-kg subsidy on nitrogen present in other fertilisers. The politically smart way to do this is by simultaneously hiking the NBS rates for other nutrients, thereby reducing the MRPs of non-urea fertilisers and encouraging their consumption. In the long run, the NBS itself should give way to a flat per-acre cash subsidy that farmers can use to purchase any fertiliser. That includes products delivering the same nutrients present in urea or di-ammonium phosphate more efficiently. Let companies compete to bring in new nutrient solutions that are crop-, soil- or even plant stage-specific. Subsidy should be incidental to, and facilitate, such innovations.
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