Root cause of inaction in fertiliser reforms

Four major pronouncements on fertiliser reforms need close scrutiny. First, the Prime Minister promised that every farmer would have a soil health card (SHC) to know how much nutrient is needed for a good yield and to keep the soil healthy. What if the results of the soil analysis encapsulated on the SHC require application of more phosphate (P) and potash (K) but the fertilisers carrying these nutrients, other complex fertilisers and so on are too expensive?

Currently, the MRP of dia-ammonium phosphate (DAP, the primary source of P) is four times the price of urea (the main source of nitrogen), whereas muriate of potash (MOP, the main source for K) sells at over three times the MRP of urea. Imbalance in MRPs arise because the government controls the price of urea at a very low level with heavy subsidy support (50%-75% of cost)while keeping a tight leash on subsidy for DAP and MOP(33% of cost) on the flawed logic that the latter are decontrolled. Since, non-urea fertilisers too provide vital nutrients, less subsidy support to them is untenable.

For over three years now, there has been talk of bringing the policy dispensation for urea on a par with those of P and K fertilisers by implementing a nutrient-based scheme (NBS), but nothing’s been done. As a result, the imbalance in MRPs and in fertiliser use has only got aggravated. Second, the government claims that it has won the war on diversion of urea for industrial use by directing manufacturers to sell only neem-coated urea. It is impossible to police a mammoth 600 million bags annually. The real reason for blackmarketing of urea is its ‘artificially’ low MRP. Worse, the Cabinet decided to freeze it at the existing level till 2018-19.

Third, government says it will implement direct benefit transfer this year itself. The foremost requirement for this is to identify farmers, for which States need to update all land records and digitalise them. Their bank accounts need to opened and seeded with Aadhaar. The government will also have to decide whether to cover all, or restrict the benefit to poor farmers. At present, subsidy is routed through 30 urea manufacturers who get compensated for excess of unit-specific cost over MRP under a warped system called the New Pricing Scheme (NPS). If subsidy is to be given to farmers under DBT, then NPS will have to go. Yet, under the new comprehensive urea policy announced in May, the government has decided to continue NPS for four years.

Fourth, the government plans to revive all sick fertiliser plants under the Fertiliser Corporation of India and the Brahmaputra Valley Fertiliser Corporation of India (BVFCL). But the Jagdishpur-Phulpur-Haldia pipeline which should carry gas to them has been languishing for years. Last year, Narendra Modi directed the Gas Authority of India to complete the work in two years. Most crucially, how will the revived plants survive under a de-regulated scenario?

In short, the government has not taken any credible action on any of the four counts: (i) promoting optimum and balanced fertiliser use; (ii) reining in blackmarketing of urea; (iii) DBT; and (iv) revival of sick plants. The root cause of the inaction is the government’s unwillingness to accept higher MRP for urea, which will be inevitable if the required steps are implemented.

The share of fertilisers in total cost of agricultural inputs is less than 10 per cent. Therefore, even if the price of urea is increased by 50 per cent, farmers’ expenses on inputs will only go up by 5 per cent. This too can be offset (in fact, more than offset) by improved efficiency of use with the adoption of scientific agronomic practices. If properly explained, this won’t invite any adverse reaction from the farming community.

So, the road map is clear. The government should immediately bring in NBS for urea which will help remove imbalance in fertiliser use and stem the diversion of urea. With uniform gas pricing for all units already in place, the transition from the extant NPS to NBS will be smooth. The industry can remain under NBS for three or four years at the end of which DBT can come in. The interregnum can be used for readying farmers.

Unlike the Goods and Services Tax or the land Bill, these policy changes lie entirely in the executive domain. The government should not waste any time kickstarting the process.

The writer is a policy analyst