DEREGULATING NON-SUBSIDISED FERTILISERS

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Context

• The recent electoral outcomes have left the BJP without a clear single-party majority in Parliament.
• This political scenario significantly influences the upcoming Union Budget, particularly in sectors sensitive to populist pressures and coalition dynamics, such as the fertiliser sector.
• The Opposition's rejuvenation adds further complexity, as their electoral gains empower them to assert influence over budgetary decisions.

MUST READ ARTICLES:

UREA UNDER NBS REGIME: https://www.iasgyan.in/daily-current-affairs/urea-under-nbs-regime#:~:text=Context%3A%20The%20Commission%20for%20Agricultural,fertilisers%2C%20rather%20than%20the%20product.

NUTRIENT-BASED SUBSIDY (NBS): https://www.iasgyan.in/daily-current-affairs/nutrient-based-subsidy-nbs

Impact on Fertiliser Sector Reforms

Urea Pricing and Subsidy Regime

Urea MRP Frozen Since 2015

• Since January 7, 2015, the maximum retail price (MRP) of urea has been fixed at Rs 5,628 per tonne, including neem oil-coating adjustments.
• This prolonged freeze reflects political caution, as any adjustment in urea prices is politically sensitive due to its direct impact on farmers' costs and agricultural productivity.

Decontrol of Nutrient-Based Subsidy (NBS)

• The idea of bringing urea under the nutrient-based subsidy (NBS) regime, which allows for market-driven pricing adjustments, has been discussed but remains stalled.
• The current political climate, with coalition pressures and opposition concerns, discourages the government from implementing such reforms that could lead to potential price increases for farmers.

Non-Urea Fertilisers Pricing

Control Over MRP of DAP, MOP, and Complex Fertilisers

• Similarly, other fertilisers like di-ammonium phosphate (DAP), muriate of potash (MOP), and complex fertilisers remain under government control regarding pricing.
• Companies are not currently permitted to freely set MRPs due to the regulatory framework aimed at stabilizing agricultural input costs and ensuring affordability for farmers.

Non-Urea Fertilisers Pricing under NBS

Decontrol and Recent Developments

NBS Fertilisers Decontrol

• Non-urea fertilisers under the Nutrient-Based Subsidy (NBS) regime are technically decontrolled.
• This means that manufacturers or importers receive subsidies linked to the nutrient content (N, P, K, S) of their products, rather than a fixed subsidy per tonne.

Informal Price Control Measures

• Despite the decontrol, recent years have seen these fertilisers subjected to informal price controls.
• Effective from April 2023, the Department of Fertilisers has imposed regulations prescribing maximum profit margins over costs to determine the "reasonableness" of MRPs (Maximum Retail Prices).

Impact of "Reasonable" Pricing

• Fertiliser companies charging MRPs above these prescribed rates risk not receiving subsidies from the Centre under the NBS scheme. This regulatory framework aims to balance market dynamics with affordability for farmers.

Current Status of Fertiliser Sales and Subsidies

Sales Composition and Subsidised Fertilisers

• The majority of fertiliser sales in India, spanning 2022-23 and 2023-24, are dominated by a select few products.
• These include urea, DAP, SSP, 20:20:0:13, MOP, 10:26:26:0, and 12:32:16:0, which together constitute approximately 94% of the overall sales volume.
• These products are either under controlled MRPs (like urea) or operate under the "decontrolled" pricing mechanism of the NBS subsidy.

Fiscal Pressures and Subsidy Outgo

• Despite political changes, the fiscal pressure on the government to raise MRPs of these fertilisers is minimal.
• The budgeted fertiliser subsidy for 2024-25 stands at Rs 163,999.80 crore, down from previous fiscal years, indicating a strategic fiscal management approach.

International Price Trends

• Landed prices of imported fertilisers like urea, DAP, and MOP have significantly decreased from their recent highs.
• This reduction, influenced by global market dynamics including decreases in phosphoric acid and ammonia prices, provides a conducive environment for stable domestic pricing.

Potential Reforms in the Fertiliser Sector

Deregulation of Non-Subsidised Fertilisers

• A feasible reform approach could involve deregulating fertilisers that do not receive any subsidy support.
• Currently, India's regulatory framework imposes extensive timelines and bureaucratic hurdles for registering new fertiliser products, averaging around 804 days.
• Comparatively, other countries like China, Canada, and the US have significantly shorter registration processes.

Proposed Simplification of Registration Process

To encourage innovation and market responsiveness, stakeholders suggest implementing automatic registration for new fertiliser products meeting defined criteria:

• Minimum content of total plant nutrients.
• Maximum limits for heavy metals and contaminants.
• Mandatory label claims subject to testing by enforcement agencies.
• This streamlined approach aligns with international best practices, eliminating agronomic and bio-efficacy trial requirements that often delay product entry into the market.

Precedent in Water-Soluble Fertilisers and Extension to All Fertilisers

Introduction of Automatic Registration

Water-Soluble Fertilisers (WSF) Example

• The Government introduced "general specifications" in October 2015 for water-soluble fertilisers (WSF).
• These fertilisers, fully soluble in water, are designed for application through drip irrigation or foliar spraying directly onto plant leaves.
• The specifications mandate a minimum 30% content of total nutrients, with primary (NPK), secondary (S, calcium, magnesium), and micro nutrients (zinc, boron, manganese, iron, copper, molybdenum).
• Strict limits on contaminants (lead, cadmium, arsenic, chloride, sodium) ensure product safety.

Streamlined Registration Process

• Companies producing WSF meeting these specifications can market their products after a simple notification to government authorities, facilitating quicker market entry within 30 days.
• This approach has already seen success, with over 100 WSF products launched by leading firms like Deepak Fertilisers, Coromandel International, Yara, and others.

Extension to All Non-Subsidised Fertilisers

Proposal for All Fertilisers

• Fertilizer Companies advocates extending this streamlined registration model to all non-subsidised fertilisers.
• This would allow Indian farmers access to the latest innovations in fertilisers without the delays currently experienced due to lengthy regulatory processes.

Benefits of Extension

• Extending automatic registration to all fertilisers not receiving subsidies would:
• Promote access to innovative products similar to those available in advanced agricultural markets.
• Accelerate market introduction, enhancing competitiveness and agricultural productivity.
• Support specific crop needs through tailored nutrient formulations, particularly beneficial for high-value crops like grapes, pomegranate, and cotton.

Advantages of High-Value Nutrient Fertilisers and Proposed Deregulation

Enhanced Nutrient Absorption and Efficiency

Nutrient Absorption Efficiency

• Water-soluble fertilisers (WSFs) significantly enhance nutrient absorption by plants compared to traditional bulk field-applied fertilisers.
• WSFs like potassium nitrate and mono-ammonium phosphate (MAP) are fully water-soluble, leading to higher nutrient uptake rates.

Comparison of MRPs and Efficiency

Regular vs. WSF Fertilisers:

• The MRP for regular 19:19:19 NPK fertiliser is approximately Rs 31,000 per tonne.
• In contrast, WSF 19:19:19 commands a higher MRP of Rs 125,000 per tonne due to its enhanced solubility and nutrient absorption efficiency.

Nutrient Uptake Efficiency:

• Crops absorb only 30-35% of nutrients from traditional bulk fertilisers applied to fields.
• WSFs improve this absorption rate significantly to 60-70%, thereby optimizing nutrient use efficiency.

Liquid Fertilisers:

• Liquid fertilisers like urea ammonium nitrate achieve even higher nutrient use efficiency (80-90%) due to their dissolved form, requiring minimal dilution for application.

Proposal for Deregulation of Liquid Fertilisers

Similarities with WSF Model

There is a current proposal to deregulate liquid fertilisers, paralleling the successful WSF deregulation model. This proposal suggests:

• Minimum content requirement of 15% total primary nutrients.
• Limits on heavy metal contaminants, ensuring product safety and environmental compliance.

Industry Perspective and Future Steps

• The fertiliser industry advocates for deregulating non-subsidised fertilisers as an initial step before considering broader reforms such as decontrol of urea and nutrient-based subsidy (NBS) fertilisers.
• This strategic approach aligns with long-term goals of enhancing agricultural productivity and competitiveness, contingent upon political feasibility.

Conclusion

• The push towards deregulating high-value nutrient fertilisers, akin to WSFs, underscores industry efforts to modernize agricultural inputs in India.
• By promoting more efficient nutrient absorption and utilization, deregulation initiatives aim to foster innovation and improve crop yields.
• As stakeholders continue to advocate for regulatory reforms, the potential benefits extend to enhancing farmers' access to advanced fertiliser technologies, ultimately contributing to sustainable agricultural development.

SOURCE: INDIAN EXPRESS