Union Finance Minister Nirmala Sitharaman reduced the subsidy on urea and nutrient-based (NPK) fertilisers on February 1. The move, however, is expected to have a negative impact on the struggling agricultural sector.
Essential supplies such as natural gas, phosphoric acid, ammonia, sulphur, and muriate of potash have seen considerable price increases in the financial year 2021- 2022. One of the reasons why the government had to increase fertiliser subsidies more than once last year was due to higher commodity inflation in farm chemical inputs, which resulted in shortages.
The urea subsidy allocation in Sitharaman’s Budget for 2022 – 23 was Rs. 63,222.32 Crore, which was 17 per cent less than the Revised Estimates (RE) for 2021-22. Subsidies for Nutrient-based (NPK) fertilisers were allocated another Rs. 42,000 Crore, which was 35 per cent less than the RE.
In the financial year 2020 – 21, the Centre has spent over Rs. 127,921.74 Crore on fertilisers. In the Union budget for 2021 -22, it was reduced to Rs. 79,529.68 Crore. Owing to the farm crisis and pandemic, this was revised to Rs. 140,122.32 Crore. Now, it has been reduced by over 25 per cent in the current budget, to Rs. 105,222.32 Crore.
It must be noted that the reductions come at a time when international fertiliser costs are at an all-time high, making it difficult for Indian farmers to get regular supplies. Owing to the cut in the current financial allocation, government subsidies for agricultural chemical inputs including urea, di-ammonium phosphate, and potash are likely to decrease in the coming year too.
How subsidy affect farmers?
The Centre wants manufacturers or importers to sell fertilisers to farmers at a low Maximum Retail Price (MRP), which is unrelated to the much higher cost of supply. Therefore, MRP, per unit supply cost, and the amount of fertiliser use are the three main factors that can influence subsidies. This can either increase MRP or lower the quantity of fertiliser used or lower the unit cost supply.
India is heavily reliant on imports when it comes to supply costs. Nearly half of the DAP required for P&K fertilisers is imported, whereas Muriate of Potash (MOP) is imported entirely. When it comes to urea, imported urea accounts for one-third of the total demand. Considering all these factors, India has limited options for lowering costs, which are mostly determined by global demand-supply forces.
Given that the present subsidy price of di-ammonium phosphate, or DAP is already high at Rs. 1,211 per 50 kg (MRP as of April 3), which is likely to go up in the coming days. The government subsidy price for muriate of potash is 303.50 (MOP) and for NPK is Rs. 732.35. Prices of all fertilisers and raw materials increased between 2021 and 2022 with the price of DAP more than doubled, while the price of urea and MOP increased nearly threefold. Farmers will essentially suffer if the government makes the prices remain high in the years 2022 – 2023.
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