Source: IE
Why in News?
Amid ongoing economic reforms, economists have urged the government to urgently restructure India’s fertiliser subsidy regime due to rising fiscal burden, nutrient imbalance, and environmental concerns.
What is the Fertiliser Subsidy?
- A price-support mechanism where the government compensates fertiliser manufacturers/importers for the gap between cost of production/import and retail price to farmers.
- Focuses mainly on urea, keeping prices artificially low to ensure affordability and food security.
- Has evolved into one of India’s largest and most distortionary subsidies.
Why is the Subsidy Needed in India?
- Food Security
- Enabled Green Revolution and cereal self-sufficiency
- Fertiliser–grain response ratio ~1:10 in the 1970s
- Support to Small & Marginal Farmers
- Over 85% farmers hold small land parcels
- Shields them from global fertiliser and energy price volatility
- Affordability of Cultivation
- Lowers cost of cultivation, especially for cereal crops and rain-fed areas
- Inflation Control
- Moderates cost-push inflation in food prices
- Risk Cushion in Climate-Uncertain Agriculture
- Acts as a buffer against monsoon failures and yield shocks
Key Challenges with the Existing Regime
- Low Nutrient Use Efficiency (NUE)
- Only 35–40% of nitrogen absorbed by crops
- Environmental Degradation
- Groundwater nitrate pollution
- Declining soil organic carbon
- Productivity Stagnation
- Fertiliser–grain response ratio fell to ~1:2.7 by 2015
- Leakages & Diversion
- 20–25% subsidised urea diverted to non-agricultural uses
- Fiscal & Geopolitical Risks
- Import dependence exposes subsidy bill to global energy shocks
Way Forward
- Gradual Price Decontrol + Income Support
- Shift from price subsidy to direct income transfers (PM-KISAN–type support)
- Bring Urea under Nutrient-Based Subsidy (NBS)
- Align nitrogen pricing with P & K to correct imbalance
- Leverage Digital Agriculture (Agri Stack)
- Target fertiliser use based on land size, crop type, and satellite data
- Promote Balanced & Precision Farming
- Encourage complex fertilisers, micronutrients, fertigation, customised blends
- E-Vouchers & PoS-based Delivery
- Digitised distribution (e-RUPI–style vouchers) to curb diversion
