Govt may rationalise urea price, disincentivise chemical fertilisers

The proposed move seeks to promote balance between chemical and organic fertilisers

Fertiliser reforms are likely to be announced soon, according to a person in the know, and will focus on shifting the subsidy regime from direct credit to manufacturing companies to farmers, and ensuring balanced use of chemical and organic fertilisers.

For direct transfer to farmers (by crediting subsidy to their accounts instead of paying companies, as is the current practice), rationalising or decontrolling the price of urea and disincentivising the use of chemical fertilisers are under consideration.

Though discussions on these measures have been going on for the past two months, “alternative mechanisms are not easy to implement and, hence, the decision is getting delayed,” explained the source.

The recent Union Budget hinted at some measures, such as a reduction in allocation for fertiliser subsidies. The outlay to the Department of Fertilisers for fiscal year 2020-21 (FY21) was Rs 71,345 crore, compared to the revised estimate of around Rs 80,000 crore in FY20, a cut of about 11 per cent.

According to an analysis by the Phillip Capital’s Institutional equity research, “The cut is largely to accommodate the sharp correction in international inputs prices. In fact, prices of P&K (phosphatic and potassic) fertiliser inputs declined sharply in recent months, easing the subsidy burden. While the subsidy reduction in urea was surprising, considering the carry over liabilities of the sector, this could be an indication of the government moving towards balanced usage of fertilisers by rationalising urea prices ahead.”

Urea prices have to be decontrolled or rationalised if the subsidy amount is to be transferred directly to farmers’ bank accounts. While direct benefit transfer is a fiscal issue, the kind of fertiliser used is of importance for soil health.

On fertiliser policy, NITI Aayog member Ramesh Chand stressed, “instead of focusing on ratio of NPK fertilisers, there is a need to focus on balancing between organic and chemical fertilisers”. Higher the use of organic fertiliser, better the soil health.

An incentives package for organic and natural fertilisers is also on the cards. However, an industry analyst said, the availability of organic fertilisers could be an issue. He said nutrient content in organic fertilisers tends to be lower than in urea and, hence, is consumed at a higher rate.