IAS Gyan

Daily News Analysis

Fertiliser Subsidy

8th December, 2021 Economy

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  • The Centre’s fertilizer subsidy bill is set to soar 62% over the budgeted amount to ₹1.3 lakh crore this fiscal due to the massive rise in raw material prices despite lower demand.

Reasons behind the increase:

  • the price of natural gas, the feedstock that accounts for 75-80% of the total cost of production for urea plants, has risen more than 50% this fiscal.

About fertiliser subsidy

  • Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.
  • The MRP of neem-coated urea, for instance, is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively.
  • The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
  • The MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
  • The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
  • Decontrolled fertilisers, thus, retail way above urea, while they also attract lower subsidy.

Payment of Subsidy:

  • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
  • From March 2018, direct benefit transfer (DBT) systemwas introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
  • Each retailer has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT
  • Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
  • Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.