The Centre’s fertiliser subsidy may reach up to ₹1.5-lakh crore this fiscal, 89 per cent more than the Budget estimate, after global prices touched a record on rising demand for the crop nutrients in many countries including India.

The cost of both imported urea and diammonium phosphate (DAP) is around $1,000/tonne this year against last year’s average of $300 in urea and $330 in DAP, said Satish Chander, Director-General of FAI. “This is the reason why the subsidy may be about ₹1.4-lakh crore this year,” Chander said. However, another industry official pegged it higher at ₹1.5-lakh crore, unless there is a drop in demand.

Last year, the country had record sales of fertiliser — 67 million tonnes (mt) — and also an all-time high import of about 22-22 mt, industry data show. The country’s foodgrains output, too, jumped to a record 308.65 mt and that of horticulture production to 331.05 mt during 2020-21 crop year (July-June).

Financial burden

This is a disturbing trend since FY22 started on a clean slate after the government cleared all past arrears and provided for ₹1.34-lakh crore as fertiliser subsidy in the Revised Estimates for FY21. However, actual subsidy (excluding arrear) was about ₹85,000-90,000 crore. The Finance Minister has allocated ₹79,529.68 crore on account of fertiliser subsidy for FY22. But the Cabinet has already approved additional subsidy of ₹43,430 in two tranches — first ₹14,775 crore in June and ₹28,655 crore in October.

In the short-term, there is no other alternative but to import to bridge the gap between demand and domestic production. Since the neem-coated urea, though good in principle, has not been able to reduce the consumption of this nutrient to the extent desired, there has to be some out-of-box solution for which the recent launch of nano-urea can be helpful. Apart from other benefits, neem-coated urea was also to check its alleged diversion towards industrial use.

“The interplay of carbon neutrality and future availability of fossil fuel will direct future urea supply. The bio-fertiliser or natural fertiliser is the long term solution,” said S Chandrasekaran, a trade policy analyst. The need of the hour is that government should plan for a gradual phase-out programme of chemical fertiliser, he said adding developing number of SMEs in natural fertiliser production to meet specific local needs is the solution.

“Incentivising the farmers for using natural fertiliser will rather bring fiscal compensation in health and good for environment in addition to rural employment,” Chandrasekaran said.

Stress on R&D

Addressing the annual event of FAI, director general of Indian Council of Agricultural Research (ICAR) Trilochan Mohapatra said it was good that cooperative major IFFCO has been doing research to find out biological and non-biological sources as import substitution for phosphorous (P) and potash (K). While entire potash is imported, as much as 80 per cent of phosphorous is sourced from outside the country.

Acknowledging that fertiliser use gave the country self-sufficiency in food, Mohapatra said: “But, we got deviated somewhere and there were some negative consequences.” He was referring to skewed usage of fertiliser – only 90 districts use 85 per cent of the total fertiliser consumption in the country whereas remaining 15 per cent of the nutrients go to over 500 districts.

He also appealed the fertiliser industry to join with ICAR to launch a massive campaign on the balanced use of fertiliser.

Raising the issue of fixed cost of urea plant, FAI Chairman KS Raju said this has affected the viability of three large units having a combined capacity of 4.3 mt. “Increase in minimum fixed cost would also increase the viability of production of another 4 mt beyond capacity,” Raju said requesting the government to raise it to ₹2,300/tonne from current ₹1,635.

FAI officials also said that Indian manufacturers are producing urea at $350-400/tonne against the current global price of $1,000. The average production cost of urea in old plant is about $350/tonne and in new plant is $400/tonne, said Chander.

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