Expedite process to bring urea under NBS, FinMin asks Fertiliser Ministry

Urea has a floating subsidy component whereby govt subsidy to marketers varies with marketing price

Few days after the Fertiliser Ministry announcing no price hike for urea, the finance ministry has written to the fertiliser department to expedite the process for including urea under Nutrient-Based Subsidy (NBS) programme.

According to officials, the crude prices are falling and it has an impact on overall fuel prices and thus it is conducive for bringing urea under NBS which is a long standing recommendation for rationalisation of the subsidy.

Urea unlike other fertiliser (potash, phosphates, nitrogen etc) has a floating subsidy component whereby the government subsidy to the marketers varies with the marketing price (MRP).

Thus while the price charged to the farmers remains same, the difference between the market price and cost is reimbursed by the government. Thus with rising cost due to rising fuel prices, the subsidy component of the government keeps going up.

In other fertiliser categories, the government subsidy is fixed while market price charged to the consumers keep varying as per cost which is other referred to nutrient based subsidy.

One of the reasons for bringing urea under NBS is the overuse of urea among the farmers which is degrading the quality of the soil. In fact, in the presentation on ensuing Rabi season, the secretary of fettiliser raised serious concern on imbalanced use of fertilizers and continuously increasing ratio in the sale of urea as compared to potassium & phosphate.

He mentioned that besides imbalance in fertilizer use, depleting soil organic matter, emerging multi-nutrient deficiencies, negative soil nutrient balance and declining nutrient use efficiency & crop response ratio are the major concerns in Indian agriculture.

In the maiden budget presented by the new government, it was proposed to move urea into NBS but the Fertiliser Ministry has been going slow on it, said official sources.

Fertiliser subsidy paid to the companies has declined by about 41% to Rs 21,300 crore during the April-July 2014 as against Rs 36,000 crore paid in the corresponding period the previous financial year.

The government had increased the total fertiliser subsidy in the July budget at Rs 72,970.30 crore for the entire 2014-15 fiscal from Rs 67,970 crore proposed in the Interim Budget. India imports P&K fertilisers in the absence of much raw material to produce these fertilisers.

The Economic Survey 2013-14 pointed out that the government and farmers are together ‘wastefully’ spending over Rs 8,500 crore on urea, as it is highly subsidised soil nutrient and therefore used instead of P&K fertilisers.

Urea prices are fixed at a maximum retail price (MRP) of Rs 5,360 per tonne and the government pays manufacturers the difference between the cost of production and MRP.

Urea prices have remained largely unchanged over the last decade. In February, the government raised the ‘fixed cost’ of urea, one of the components used to determine its production cost, by up to Rs.350 per tonne.

The country’s urea production has remained at 22 million tonnes (mt) since 2007-08, while current demand is about 30mt, forcing the country to meet the shortfall of 8mt through imports.

No urea capacity has been added in India in almost 13 years. The fertilizer minister hopes to boost the production of domestic urea by reviving the eight sick units of FCIL and HFCL.