Will the new nutrient-based subsidy help?

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. 

The subsidy per-unit tonne has been notified for 13 fertilisers, and the announcement for the remaining five fertilisers will come later. The urea price will continue to be controlled although the price that had been kept unchanged since February 28, 2002, has been raised by 10% from Rs 4,830 to Rs 5,310 a tonne from this month. 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. 

Even after decontrol, the government intends to keep the prices of the 18 fertilisers within 5-6% of the current control price level. The subsidy will be administered through the industry and is benchmarked to the current landed import prices of DAP at $500 a tonne, MoP at $370 a tonne, urea at $310 a tonne and sulphur at $190 a tonne at the current exchange rate of Rs 45.50 to a US dollar. 

Simple calculations show that the subsidy on the nutrient was calculated in a manner that the current landed import price of the fertiliser after adjusting the 10%subsidy is below the present control price of the fertiliser. However, the government expectation to keep the decontrolled price of the phosphorous and potassic fertilisers within 5% of the earlier control price will not be achieved if either the international prices of the fertiliser rise 10% from the current levels or the rupee depreciates more than 10% to the US dollar. 

In such an event, there will be no option but to increase budgetary support in the form of NBS. 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. 

Take the related case of human health and the pharmaceutical industry, where against the objective of providing subsidy to address specific health concerns and nutrient requirements that may be specific to gender, age and occupation, the government fixes the price of some drugs by subsidising the industry. This leads to overuse of the subsidised drugs, ignoring the specific health concerns of a person or her particular nutrient needs. 

The analogous situation under the NBS regime in human drugs case would be to give salt-based fixed and pre-determined administered subsidy to select drugs, with the further announcement that prices of these drugs would have to be kept within 5-6% of the earlier control prices. Would it not lead to similar behaviour of consumer and industry and outcomes as in the earlier PBS regime? Can the agriculture sector draw lessons from the health sector? 

Neither the PBS regime nor the NBS regime has a correlation with the actual demand for fertilisers, i.e., the soil health or the nutritional need of the crops. Soil can be tested for deficiencies in macro, secondary or micro nutrients in thousands of soil laboratories across the country. 

After taking into account the specific nutritional requirements of the crops to be grown in such soil-moisture conditions, the optimum type and dose of the fertiliser may then be prescribed by the agriculture scientist. Ideally, the soil test should be the deciding factor for the right nutrient mix for a given soil-crop requirement, and government subsidy should not distort this choice. 

The farmer could avail the subsidy support in the form of a fertiliser coupon that could be allotted to him depending on factors including the size of his land holdings and the soil condition. The Economic Survey has recommended that such fertiliser coupons ought to be freely tradeable. At the current national gross cropped area of around 200 million hectares and the present budgetary support of Rs 50,000 crore, the fertiliser subsidy at a flat Rs 2,500 per crop per hectare seems feasible. 

Such support should be independent of the choice of fertiliser type: chemical, biological or organic. Direct power for farmers will truly revolutionise innovation in fertiliser products, help restore soil health, increase agricultural productivity and reduce fertiliser prices through increase in producers’ efficiencies and reduced demand.

Source: Economic Times

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