Increased Subsidy on DAP

• 22 May 2021

Why in News

Recently, the government has increased the subsidy to 140% on Di-Ammonium Phosphate (DAP) fertiliser in order to retain the selling price for farmers at the current level.

• Recently, the international prices of phosphoric acid, ammonia etc. used in DAP have gone up by 60% to 70%.

Key Points

• About Di-Ammonium Phosphate (DAP):
  
  • DAP is the second most commonly used fertiliser in India after urea.
  • Farmers normally apply this fertiliser just before or at the beginning of sowing, as it is high in phosphorus (P) that stimulates root development.
  • DAP (46% P, 18% Nitrogen) is the preferred source of Phosphorus for farmers. This is similar to urea, which is their preferred nitrogenous fertiliser containing 46% N.
• About Subsidy Scheme for Fertilisers:
  
  • Under the current scheme, the MRP of Urea is fixed but the subsidy can vary while MRP of DAP is decontrolled (i.e subsidy is fixed but the MRP can vary).
  • All Non-Urea based fertilisers are regulated under Nutrient Based Subsidy Scheme.
• About Nutrient-Based Subsidy (NBS) Regime:
  
  • Under the NBS regime – fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
  • Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
  • The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
  • NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.
    
    • This would improve soil health and as a result the yield from the crops would increase, resulting in enhanced income to the farmers.
    • Also, as the government expects rational use of fertilizers, this would also ease off the burden of fertilizer subsidy.
  • It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.
• Issues Related to NBS:
  
  • Imbalance in Price of Fertilisers:
    
    • Urea is left-out in the scheme and hence it remains under price control as NBS has been implemented only in other fertilizers.
    • There is an imbalance as the price of fertilizers (other than urea) — which were decontrolled have gone up from 2.5 to four times during the 2010-2020 decade.
    • However, since 2010, the price of urea has increased only by 11%. This has led to farmers using more urea than before, which has further worsened fertilizer imbalance.
  • Costs on Economy and Environment :
    
    • Fertilizer subsidy is the second-biggest subsidy after food subsidy, the NBS policy is not only damaging the fiscal health of the economy but also proving detrimental to the soil health of the country.
  • Black Marketing : Subsidised urea is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers.
    
    • It is being smuggled to neighbouring countries like Bangladesh and Nepal.
• Implications of Increasing the Subsidy on DAP :
  
  • As farmers will start sowing operations for Kharif Crops, it is highly important for them to get the fertilisers at subsidised rate so as to keep inflation at check.
  • Politically, too, to turn down the farmer protests, during the time of the Covid’s second wave, is the last thing the government would want.

Source: IE