The government may revise the budget estimate (BE) for fertiliser subsidy in the current fiscal year by around 140% to Rs 2.5 trillion, as elevated global prices of fertilisers and natural gas, the key feedstock, have inflated costs. This will be the largest ever outlay for fertiliser subsidy.
The subsidy on farm nutrients stood at Rs 1.6 trillion (revised estimate) last year.
Chemicals and fertilizers minister Mansukh Mandaviya has recently stated that the government would not pass on the burden of rise in global prices to farmers. The government has been raising the subsidy on urea in tandem with the increase in costs as the retail prices of the nutrient is fixed.
The government had in April increased the Nutrient-based subsidy (NBS) rates for phosphatic and potassic fertilisers for the kharif season (from April 1, 2022, to September 30, 2022), in view of the increased cost of imports. The minister’s statement signals that the NBS rates will be hiked further in the October review.
The country’s annual demand for urea is around 35 million tonne (MT) of which 26 MT are domestically produced while the rest is imported. Urea is mostly imported from Oman, Oman, Egypt, the UAE, South African and Ukraine.
Under the NBS scheme, the aim is to insulate farmers to some extent from the increases in the prices of DAP and other non-urea nutrients in the global markets. Subsidies on P&K fertilisers were capped in 2010, but the government has increased the subsidy rates in recent years due to high prices of imported DAP and MoP.
Sale of all subsidised fertiliser to farmers or buyers is currently made through point of sale (PoS) devices installed at outlets since March 2018 and beneficiaries are identified through Aadhaar number, Kisan Credit Card and other documents.
“The prices of fertilisers have been on the rise globally in recent times, while fertilisers are being provided to farmers at affordable prices,” Bhagwanth Khuba, minister for state for chemicals and fertilizers, said in Lok Sabha recently.
In the case of urea, farmers pay a fixed price of Rs 242 per bag (45 kg) against the cost of production of around Rs 2,700 per bag. The balance is provided by the government as a subsidy to fertiliser units.
The government released fertiliser subsidy to 177 manufacturers, which sold their produce to farmers through their retail chains in 2021-22. Since the introduction of the direct benefit transfer (DBT) system in October 2016, fertiliser subsidies have been released to companies on the basis of sales made by the retailers to the farmers.