Syllabus: General Studies Paper 3 (Indian Economy)
The success of Soil Health Card scheme depends on rationalisation of fertilizer subsidies. Discuss. (15 Marks)
A Soil Health Card meant to give each farmer soil nutrient status of land holding and advice on the dosage of fertilizers and also the needed soil amendments that should be applied to maintain soil health in the long run. Fertilizer subsidies provided by GOI led to imbalance micro nutrients which led to soil health reduction.
Fertiliser subsidy in India has succeeded in achieving its objective of increasing fertiliser consumption in agriculture and hence, raising food production, but it has also led to some problems because some fertiliser products have been priced very low. There are three key issues with regard to fertiliser subsidy in India:
- rising amounts of fertiliser subsidy in the budget and how far they are financially sustainable.
- extremely low prices of urea leading to imbalanced use of N, P and K, as also misuse of urea (like diversion to neighbouring countries and its use for non-agricultural purposes); and
- Lack of investment flows to the sector at home, leading to rising imports in the wake of uncertainty on fertiliser subsidy policy issues and delayed payments to industry.
Historically, the subsidy regime for fertilisers started in 1977 with the introduction of the retention price scheme (RPS)16 for urea in the wake of volatile global prices of gas and urea. Under the nutrient-based subsidy (NBS)17 scheme, a fixed rate of subsidy in Rs./kg basis is announced after taking into consideration factors like international prices, exchange rate, inventory level as well as the existing MRP of DAP and MOP.
Why success of soil health card depends on rationalising fertiliser subsidies:
- Fertiliser subsidy has had positive effects in that it has increased fertiliser consumption, which in turn has increased yields and production of different crops.
- However, it could not incentivise an increase in domestic fertiliser production, increasing the import dependency of the sector.
- It also failed to encourage the balanced use of nutrients by farmers by keeping the price of urea at an abnormally low level for a long time.
- Thus, it contributed to soil degradation and other environmental damage arising from the imbalanced use of fertilisers.
Effects of Fertiliser Subsidy Policy
- Rising Consumption and Import Dependency of Fertiliser Sector:
- Fertiliser subsidy seems to have helped in increasing consumption of fertilisers from 16.7 MMT in FY2001 to 23.95 MMT But domestic production has increased only marginally from 14.7 MMT to 16.7 MMT over the same period. This indicates that much of the increased consumption has been met by rising imports.
There are two main causes for this stagnation in domestic production:
- Lack of raw material for potassic and phosphatic fertilisers:
- India is completely lacking in commercially exploitable potash reserves and the entire country’s demand for potassic fertilisers (MOP mainly) is met through imports.
- In the phosphate sector (for e.g., DAP) also, there is limited availability of raw materials like sulphur and rock phosphates and hence, a bulk of raw materials and intermediaries are imported in India.
- Only in the urea (nitrogenous) sector, most of the requirement is met through indigenous resources. But again, even for production of urea, some inputs like crude oil and now, even gas, are being partly imported. So, this sector is also not entirely self-sufficient.
- Low investment in the fertiliser sector in the last decade
- Imbalanced Use of Nutrients
- The fertiliser price policy followed in the country did not give right signals to the farmers to use fertilisers in a balanced manner, leading to soil degradation in many parts of the country.
- The ideal ratio of NPK fertilisers use is considered as 4:2:1. Primarily due to the pricing policy, the ratio has never been close to the ideal except for a few years.
- after the introduction of the nutrient-based subsidy (NBS) regime for P and K fertilisers in 2010, the prices of these nutrients increased rapidly while urea prices remained controlled and significantly low.
The imbalanced use of fertilisers could cause serious problems. The most pronounced of them are:
- Widespread deficiency of secondary and micro nutrients:
- On an all-India basis, the deficiency of sulphur has been found to be 41 per cent, zinc 48 per cent, boron 33 per cent, iron 12 per cent and manganese 5 per cent.
- The deficiency of zinc in the soil leads to its deficiency in food, which results in the stunted growth and impaired development of infants.
- Thus, prolonged zinc deficiency might be very harmful for generations to come and hurt India’s demographic dividend.
- Decreasing response of crops, particularly food grains to fertiliser use:
- According to the Working Group on the Fertiliser Industry for the Twelfth Plan, 2012-13 to 2016-17, Department of Fertilisers, “The average response to fertiliser application used to be around 10:1 However, IASRI, ICAR has made a study in the recent years to work out the response ratio of fertilisers for food grains based on the farmers field data and has concluded the response ratio of NPK as 1:7.8, but the response ratio varied for different crops from 1:4.9 for oilseeds to 1:7.1 for pulses and 1:8.6 for cereals (sic).”
- Environmental damage:
- Overuse of fertilisers, especially nitrogenous ones, has a degrading effect on the environment.
- As mentioned in Prasad (2009), “Part of applied fertiliser N is lost as NH3, N2, and NOx gases, which adversely affect the environment. NH3 after oxidation to NO3 also contributes to soil acidity, while other NOx are involved in depletion of the stratospheric ozone layer.
- Part of applied fertiliser N leaches down as NO3 and contaminates the groundwater resources”.
- NO3 contamination in groundwater has become a matter for concern in many states.
- For example, one of the hazardous side effects of NO3 contamination in groundwater is methaemoglobinemia or the blue baby syndrome.
- A study in Rajasthan revealed that there is severe methaemoglobinemia in all age groups of the population, especially in the less than one year age group .
- The WHO safe limit for drinking water is 10 mg NO3–N·L–1. But it was reported that of the total 822 groundwater samples from Punjab and Haryana, only 3.3 per cent had NO3–N in the 0–10 mg·L–1 range. Most of the samples, around 58 per cent, contained greater than 22 mg·L–1.
- Other states affected by No3 pollution in groundwater include Karnataka, Tamil Nadu, Andhra Pradesh and Maharashtra.
- Urea subsidy is directly paid to the producers, so there is no incentive, to discipline the cost of production, for producers as subsidy is provided covering the cost of production.
- Agriculture needs many minerals and nutrients. The subsidies only allow few of them and thus distort adopting organic methods of farming.
The Way Forward:
India’s fertiliser sector is in a mess with rising subsidies, lagging investments, rising imports, highly imbalanced use of NPK, and the diversion of urea to other countries and for uses other than agriculture. This is largely a result of administered-pricing and subsidy policies, particularly of urea. Since land is a scarce resource in a densely populated country like India, increasing agricultural productivity is the only way out to ensure food security.
- To increase agricultural productivity, along with the use of HYV seeds and proper irrigation, the importance of balanced use of fertilisers is undeniable.
- Hence, policies must be directed towards giving proper incentives and price signals to encourage the balanced used of fertilisers. Although the Government of India has already started taking some steps in this direction, they are far from what is needed to bring the sector back on track.
Considering that fertilizer subsidy is the second-biggest subsidy after food subsidy, the inaction on the part of the government is not only worrying for the fiscal health of the economy but also detrimental to the soil health of the country. Since fertilizer prices follow the trend in international petroleum prices, the only way to reduce the subsidy bill is to reduce the dependence on imports and increase domestic production. While rationalizing fertilizer subsidy across nutrients may be the short-term and immediate solution to the problem, the need of the hour is to have a policy framework that incentivizes domestic production of fertilizers.
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