Fertile for Reform: Rational use of urea — Chasing a mirage?

Second, the need for a comprehensive action plan to increase the MRP of urea was recognided by the Dr GVK Rao committee on Consumer Price of Fertilizers (1987).

Over the last five years, the Narendra Modi-led government has made several efforts to tackle diversion, hoarding, black marketing and excessive use of urea—a widely-used fertiliser that accounts for nearly half of India’s total fertiliser consumption.

These include (i) mandatorily requiring all manufacturers/ importers to do neem-coating of urea supplies (2015); (ii) making disbursal of subsidy to manufacturers conditional upon actual sales to farmers and sales getting registered on point-of- sale (POS) machines (March 2018); (iii) restricting purchase to 100 bags per transaction by each purchaser (down from 999 bags earlier) and capping number of transactions per month (August 2020) and (iv) tracking top 20 urea purchasers in each district and initiating action against those violating the purchase norms.

Now, the Centre is working on a plan to cap the number of subsidised fertiliser bags that individual farmers can buy in any cropping season. Currently, anybody, non-farmers included, can buy fertiliser through the PoS mode (they only need to furnish their Aadhaar unique identity number). The government suspects that a lot of black marketing is happening at this level, and believes it can be curbed by implementing its latest plan, as purchase above the cap will have to be at unsubsidised/full price.

Alas! None of the earlier measures have made any meaningful dent on the problem. This is because the bureaucrats are missing the big picture and are not in sync with what the prime minister would expect them to do.

On December 5, 2017, in his Mann Ki Baat radio address, Modi said, “Can our farmers take a pledge to reduce urea use by half by 2022? If, they promise to use less urea in agriculture, the fertility of the land will increase and the lives of farmers will start improving.”

Currently, there is excessive use of urea—a dominant source of ‘N’—vis-à-vis complex fertilisers such as diammonium phosphate (DAP), the main source of ‘P’, and muriate of potash (MOP), the main source of ‘K’. This has led to increasing imbalance in the NPK-use ratio. On an all-India basis, currently, this ratio is 6.7:2.4:1 against the ideal of 4:2:1, with consequent adverse effects on crop yield, soil and human health. Modi’s statement on the possibility of reversing this trend and making way for improvingthe NPK-use ratio comes against this backdrop.

In 2016-17, the urea consumption in the country stood at 30 million tonnes (mt). Of this, 24 mt were produced domestically and 6 mt had been imported. Slashing use by half would mean aiming at 15 mt by 2021-22. Against this target, in 2019-20, urea consumption was at ~33 mt (24 mt from domestic production and 9 mt imported). From this level, to come down to 15 mt in just about two years, i.e., by 2021-22, is well nigh impossible.

The lack of any progress on the goal set by the PM has a lot to do with archaic policies that are completely divorced from contemporary realities but continue to be pursued by bureaucrats working in silos.

The Union government controls the MRP of urea—set at a low level, without any relation to the cost of production and distribution. Manufacturers get reimbursed for the shortfall in realisation from sales via the subsidy on a ‘unit-specific’ basis under the new pricing scheme (NPS). The MRP is kept unchanged (today’s price is the same as in 2002) even as all cost escalations are absorbed by raising the subsidy. In the case of P and K fertilisers, there is ‘uniform’ subsidy on per nutrient basis for all manufacturers under the Nutrient Based Subsidy (NBS) Scheme. They are free to fix MRP, but are expected to reflect the subsidy. Even as the subsidy remains unchanged, rsing costs mean ever-increasing MRPs.

Juxtapose these varying policy dispensations for the two fertiliser types, and it is clear that the MRP of urea has been consistently lower than that of non-urea fertilisers, prompting farmers to use more of the former and less of the latter.

It is true that the Modi government has frontfooted the soil health cards (SHCs) scheme to guide farmers on how much of each fertiliser to use keeping in mind the nutrient-status of their land. But, this is of no use when flawed policies give signals to the contrary.

Giving urea at a throwaway price (the prevailing MRP is Rs 5,360 per tonne, less than a fourth of the actual cost) is bound to push farmers towards indiscriminate use; this also lies at the root of the continued large-scale diversion despite many administrative steps). Farmers will do it even if the SHC says ‘don’t use or use less’. On the supply side, too, factories are goaded to produce as much as possible, thanks to the cover of the NPS.

On the other hand, in the case of P and K fertilisers, there are deterrents on both demand (due to ever increasing retail price) and supply (due to ‘uniform’ and often inadequate subsidy), leading to less consumption even when SHC says ‘use more’.

In the past, many committees had recommended that the policy dispensation for urea be brought on a par with that for P and K fertilisers—the last such recommendation was given by a committee under the chairmanship of then agriculture minister Sharad Pawar (2012). Forget one subsidy rate for the entire industry (as under NBS), attempts to give ‘uniform rate within specified groups’, as recommended by the Dr Hanumantha Rao committee (1998) and the Expenditure Reforms Commission (2000), have failed.

Will things change? Will the country ever see a change in urea policy? Will excessive use of this fertiliser be curbed? For an answer, let us look at two hard facts. First, within the Marathe committee (1976) that came up with the Retention Price Scheme (RPS)—the earlier incarnation of the NPS—which was launched in 1977, the majority view was in support of allowing costs on ‘group basis’. Yet, the government of the day overruled this and opted for the minority view supporting “unit-wise” costs. Indeed, this has stayed with us for close to four-and-a-half decades.

Second, the need for a comprehensive action plan to increase the MRP of urea was recognided by the Dr GVK Rao committee on Consumer Price of Fertilizers (1987). Yet, we see the retail price remaining frozen for several decades.

A sustainable solution to India’s fertiliser woes lies in urea decontrol and giving subsidy directly to farmers. This will also save the officials from playing ‘cat-and-mouse’ and let them use their energy for something productive.Will Modi crack the whip?

Delhi-based policy analyst
www.uttamgupta.com

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