Fertiliser Subsidy

8th December, 2021 Economy

Figure 3: No Copyright Infringement Intended

Context:

The Centre’s fertilizer subsidy bill is set to soar 62% over the budgeted amount to ₹1.3 lakh crore this fiscal due to the massive rise in raw material prices despite lower demand.

the price of natural gas, the feedstock that accounts for 75-80% of the total cost of production for urea plants, has risen more than 50% this fiscal.

Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.
The MRP of neem-coated urea, for instance, is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively.
The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
The MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
Decontrolled fertilisers, thus, retail way above urea, while they also attract lower subsidy.

The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
From March 2018, direct benefit transfer (DBT) systemwas introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
Each retailer has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT
Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.