INDIAN FERTILISER SECTOR CRISIS: BURDEN OF SUBSIDIES AND OVER-REGULATION

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Picture Courtesy: INDIAN EXPRESS

 Context

The Uttar Pradesh government's ban on the sale of non-subsidised fertilisers by urea suppliers, intended to curb 'tagging', highlights how state intervention can hinder innovation and erode investor confidence.

What are Fertilizers?

Fertilizers are concentrated nutrient sources, both mineral and organic. They replenish the soil with primary macronutrients—Nitrogen (N), Phosphorus (P), and Potassium (K)—crucial for crop growth, quality, and yield.

The fertiliser sector is the backbone of the Indian economy, directly linked to food security, farmer welfare, and the nation's fiscal health.

Fertilisers have played a crucial role in boosting crop yields, increasing farmer incomes and sustaining the large population dependent on agriculture.

Types of Fertilisers Used in India

Fertilizer Sector in India

Green Revolution Era (1960s - 1990s): High-Yielding Variety (HYV) seeds drove demand for chemical fertilizers.

• Government used the Retention Price Scheme (RPS) and public-sector plants to provide subsidized fertilizers.
• Increased domestic production and consumption made fertilizers central to agriculture.

Era of Reforms and Imbalance (1991 - 2010s): Decontrol of Phosphatic (P) and Potassic (K) fertilizer prices in 1991 led to a sharp price rise, while urea remained subsidized.

• This policy resulted in the overuse of urea and subsequent soil nutrient imbalance.

Self-Reliance and Sustainability (2015 - Present): India is the world's second-largest user and third-largest producer, achieving near self-sufficiency in many areas:

• Urea: About 87% of consumption is met domestically. (Source: PIB)
• NPK Fertilizers: 90% produced in-country. (Source: PIB)
• DAP (Diammonium Phosphate): Only about 40% is locally produced. (Source: PIB)
• Muriate of Potash (MOP): 100% is still imported. (Source: PIB)

Structure of Indian Fertiliser Industry

The sector is a mix of public, cooperative, and private players, but it is heavily dependent on imports for raw materials and finished goods.

• Domestic Production:
• Public Sector Units (PSUs): National Fertilizers Limited (NFL), Rashtriya Chemicals & Fertilizers (RCF).
• Cooperatives: Indian Farmers Fertiliser Cooperative (IFFCO), Krishak Bharati Cooperative (KRIBHCO).
• Private Sector: Coromandel International, Chambal Fertilisers and Chemicals Ltd.
• High Import Dependence:
• Urea: India is the second-largest consumer and aims for self-sufficiency but still imports a significant amount to bridge the demand-supply gap.
• P&K Fertilisers: India has almost 100% import dependence for Potash (K) and heavy dependence on imports for raw materials like Rock Phosphate and Phosphoric Acid for P-based fertilisers.
• Natural Gas: This is the primary feedstock for Urea production, a large portion of which is imported as Liquefied Natural Gas (LNG), making the sector vulnerable to global energy price volatility.

Major Challenges of the Subsidy Regime 

Fiscal Burden

The Union Budget 2026-27 allocates about 1.71 lakh crore for the fertiliser subsidy, a major expenditure strain on the fiscal deficit, to support farmers and maintain affordable input costs.

Imbalanced Nutrient Use

Urea's heavy subsidy makes it cheaper than P&K fertilisers, leading to its overuse and the underuse of other essential nutrients. The ideal NPK ratio for Indian soils is 4:2:1, but the actual consumption ratio is severely skewed, often exceeding 8:3:1.

Environmental Degradation: The overuse of nitrogenous fertilisers leads to:

• Soil Health Deterioration: Increased soil salinity and acidity, and loss of beneficial microbial life.
• Water Pollution: Nitrate leaching into groundwater and eutrophication of water bodies.
• Air Pollution: Emission of Nitrous Oxide (N₂O), a potent greenhouse gas.

Global Vulnerability

High reliance on imported raw materials means global events, like the Russia-Ukraine conflict, immediately inflate international prices, increasing India's subsidy bill.

Government Initiatives for Fertilizer Sector Reform

Neem Coated Urea (NCU)

Mandating urea to be coated with neem oil. This slows down the release of nitrogen, improving Nitrogen Use Efficiency (NUE). It also prevents the illegal diversion of subsidised urea for industrial use.

Direct Benefit Transfer (DBT)

The subsidy is released to fertiliser companies after retailers sell the fertilisers to farmers through Point of Sale (PoS) machines, verified by Aadhaar authentication. This has reduced leakages and improved transparency.

Soil Health Card Scheme

Provides farmers with a 'report card' of their soil's nutrient status and recommends a customized dose of fertilisers. It aims to promote judicious and balanced fertiliser application.

Self-Reliance in Urea Production

Reviving closed fertiliser plants like those in Gorakhpur (UP), Sindri (Jharkhand), and Barauni (Bihar) to boost domestic production and reduce import dependency under the 'Atmanirbhar Bharat' mission.

PM-PRANAM Scheme

(PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth) Aims to incentivize states and union territories to reduce the use of chemical fertilisers and promote alternative fertilisers like organic manure and bio-fertilisers.

Promotion of Nano Fertilisers

Encouraging the use of next-generation fertilisers like Nano Urea and Nano DAP, developed by Indian Farmers Fertiliser Cooperative Limited (IFFCO), to promise higher nutrient efficiency, lower application volume, and reduced environmental impact.

Way Forward 

Shift to Direct Benefit Transfer (DBT)

As recommended by the Shanta Kumar Committee, the subsidy should be transferred directly into farmers' bank accounts. This would empower farmers to choose the right fertilisers, allow for market-based pricing, and curb diversion.

Promoting Precision Agriculture

Encouraging the use of technology like drones for spraying nano-fertilisers, soil sensors, and GPS-based variable-rate application can optimize fertiliser use, reduce waste, and improve crop yields.

Diversifying Nutrient Sources

Scaling up the production and use of bio-fertilisers, organic manure (through schemes like GOBAR-Dhan), and fortified fertilisers can reduce dependence on chemical inputs and improve long-term soil health.

Strengthening Farmer Awareness

Enhancing the role of Krishi Vigyan Kendras (KVKs) and Farmer Producer Organizations (FPOs) in educating farmers about balanced nutrition and the benefits of integrated nutrient management is crucial.

Innovating for Self-Reliance

Investing in R&D for technologies like coal gasification (e.g., Talcher Fertilizers Ltd) and exploring the potential of green hydrogen as a feedstock for ammonia production can secure India's long-term fertiliser security.

Learn from Global Best Practices

• European Union (Farm to Fork Strategy): The EU plans to cut fertiliser use by 20% by 2030, focusing on precision farming, strict environmental audits, and efficiency incentives instead of price controls.
• China (Zero Growth Policy): Since 2015, China capped fertilizer consumption growth using technological solutions, such as deep placement of fertilisers, and farm consolidation, instead of subsidies.

Conclusion

Reforming the Indian fertiliser sector for sustainable food security requires rationalizing subsidies, embracing innovations like nano-fertilisers, promoting balanced nutrient use through the Soil Health Card, and empowering farmers.

Source: INDIAN EXPRESS