Monday, May 16, 2011

Nutrient Based Subsidy

The new nutrient-based subsidy policy is finally effective from April 1, 2010. The subsidy will be admissible for the three macro nutrients — nitrogen (N), phosphorous (P) and potassium (K) — one secondary nutrient — sulphur (S) — and two micro nutrients — zinc and boron — on actual weight of the nutrient in the fertiliser. The scheme will be applicable on controlled fertilisers other than urea, but including diammonium phosphate (DAP), monoammonium phosphates (MAP), triple superphosphate (TSP), muriate of potash (MoP), ammonium sulphate, single superphosphate and 12 other complex fertilisers.

Earlier, the heavy subsidy on urea led to its overusage and smuggling to neighbouring countries.

The objective of shifting from product-based subsidy (PBS) to nutrient-based subsidy (NBS) regime was to restore soil health by addressing the nutrient imbalances of NPK and the lack of secondary and micro nutrients through use of fertilisers on specific soil-moisture conditions and crop needs. Also, price decontrol is supposed to incentivise innovation in fertiliser products. The NBS regime, like the earlier PBS regime, does not address the government's fiscal concerns if the issue price of fertilisers to the farmers is to be maintained. The NBS regime, as notified, seems to be old wine in new bottle. It is administered, and not market determined, and, therefore, will fail to ensure nutrient use as per soil health and crop requirements. Cheap urea will continue to be overconsumed. Deficiencies of other nutrients such as calcium, magnesium, chlorine, copper, iron, manganese and molybdenum remain unaddressed.

But in the last one year since the start of the NBS scheme last April, there were huge increases in the global price of non-urea fertilisers . That has meant increased pressure on urea, a controlled fertiliser and therefore the cheapest and most used by farmers. Not freeing up its farm gate price for any longer will mean higher reliance on already high priced imports to the immense disadvantage of domestic units, something a government already struggling to get the math right on soaring subsidies right, can ill afford. But this remains a politically sensitive issue.

It will also defeat the very basic objective of balanced fertilisation espoused by the NBS. Under the nutrient-based subsidy regime, fertiliser companies will get the freedom to set prices on nutrientbased fertilisers leaving the government to decide a fixed annual per tonne subsidy on nutrients.

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