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Subsidy on Fertilizer and Its Impact | India

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After reading this article you will learn about the subsidy on fertilizer
and its impact.

Subsidy causes burden on the government and has its impact on the
scal policy of the county. Its reduction or removal lightens the
burden of the government. Subsidy was rst introduced in India in
1973-74 which was on imported fertilizers because there was a
steeping rise in prices due to the oil crisis in the world.

The subsidy on fertilizer is very common in developing countries. The

subsidy started with the pious intention of the government to lighten
the burden on the farmers as the price of fertilizer cannot be borne by
the farmers and as such they won’t be able to afford to apply
fertilizers as recommended by the agricultural scientists which would
result in lower output per unit of land.

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But now, the subsidy on fertilizer has become tied up with politics in
the country.

As a result of subsidy:

There would be:

1. Improvement in production e ciency.

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2. Bringing in marketing e ciency which means reducing the marking

margin.

3. Subsidizing and controlling fertilizer prices.

4. Supporting output prices and thus reducing the real fertilizer prices.

Since the introduction of subsidy, fertilizer subsidy increased from Rs.

330 million, 0.06 per cent of the GDP in 1989-90. This was 50% of all
subsidies in the budget of 1989-90. This has caused rain on the
budget and raised questions regarding sustainability. In the case of
imported fertilizers, the difference between the import price and the
internal sale price, plus the cost of distribution, is entirely borne by the
government.

Subsidies on Imported and Domestically Produced Fertilizers

On August 25, 1992 the government announced the decontrol of

phosphates and potassic fertilizer but nitrogenous fertilizer remained
under control and its price reduced by 10%.

The result was that phosphates fertilizer price was twice the
nitrogenous fertilizer and potash price was more than nitrogenous in
contrast to earlier prices when phosphorus fertilizer prices was only
15% more than nitrogen one and potash price only half of nitrogen.

This announcement upset the balance between these three classes of

fertilizers. The motive behind the government announcement was to
reduce subsidy but it went against phosphorus and potash fertilizers.
Despite the fact that commodities prices shot up fertilizer prices
remained constant but procurement and support prices of agricultural
commodities were raised which was illogical.

The government by another step started giving a rebate of Rs. 1000

on DAP and MOP (Di-ammonium phosphate and Murate of Potash)
which gave some relief to farmers and industry. The rebate was on
domestically produced DAP thus there was reduction in the prices
gap between the domestically produced and imported one.

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The story of rebate continued and by another announcement a rebate

of Rs. 340/- per tonne was given on Single Super Phosphate (SSP)
and simultaneously the procurement prices of major crops were
raised: paddy Rs. 2,300/- tonne to Rs. 3,200/- tonne, wheat from Rs.
2,500/- tonne to Rs. 3,300/- tonne.

In order to get an assured procurement of wheat Punjab and Haryana

government announced a rebate of Rs. 250 to Rs. 500 per tonne.

As a result of these actions the consumption of nitrogen increased

but phosphate and potash decreased domestically by 5% rise in
nitrogen and 13% in phosphate and potash consumption. Thus, the
overall fall in kharif and rabi was 1% and 6% respectively.

Subsidizing nitrogen will create the unbalance and ine cient use of
fertilizer which is neither energy conserving nor ecologically friendly.
Decontrolling potash does not affect cultivation of wheat in the north
but will affect application rates on crops like paddy, cash crops
(potato, sugarcane), plantation crops, fruits and vegetables.

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Changes in phosphate consumption in farming may have wider

impact because phosphate application is a must.

With rebate and subsidies the prices of various fertilizers in July 1993
were: Urea—Rs. 2,760/- tonne, DAP—Rs. 6,000-6,400/- tonne; MOP—
Rs. 3,600-3,800/- tonne, and SSP—Rs. 2,000-2,200/- tonne.

It was predicted that the net result on the cultivation of rice and wheat
would be:

1. Nitrogen application which is two-third of fertilizer use is more

pro table now,

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2. Phosphate application shall be pro table,

3. Pro tability of potash application, as the price is, will be:

With rebate of Rs. 1000/- tonne there will be increase in the use of
phosphate therefore, to buy the same credit must be made available.
Thus, in the light of the above facts, the best way out is the Integrated
Nutrient Supply from organic sources—FYM, compost, green
manures, bio-fertilizers, and sewage and sludge.