Reducing Fertilizer Subsidy | 02 Sep 2023

Union Budget 2023–24 launched the PM-PRANAM to promote the balanced use of chemical and alternative fertilizers, generating awareness of regenerative agriculture (RA).

RA is an outcome-based food production system that nurtures and restores soil health, protects the climate and water resources and biodiversity, and enhances farms’ productivity and profitability.

What is the PM PRANAM Scheme?

• It stands for PM Programme for Restoration, Awareness, Nourishment, and Amelioration of Mother Earth.
• It aims to reduce the use of chemical fertilizers and promote the balanced use of alternative fertilizers .
• It will save the subsidy burden on chemical fertilizers, which is projected to increase to Rs 2.25 lakh crore in 2022-2023.
• It will make Indian agriculture more resilient to the changing climate.
• It will incentivise those states that use less chemical fertilizers than their average consumption in the last three years.
  • The states will receive 50% of the subsidy savings as a grant, which they can use for asset creation, technological adoption, and awareness generation related to alternative fertilizers.
• It will involve the participation of farmers, panchayats, farmer producer organizations and self-help groups that are involved in the reduction of fertilizer use .
• It is in line with the government’s focus on promoting green agriculture and sustainable agricultural practices with environmental concern.
  • It will support the existing initiatives such as National Mission for Sustainable Agriculture (NMSA), National Initiative on Climate Resilient Agriculture (NICRA), and PM Krishi Sinchaayi Yojna (PMKSY).

What are the Issues with Fertilizer Usage in India?

• Imbalance in Fertilizer Use: India has a recommended ratio of 4:2:1 for nitrogen (N), phosphorus (P), and potassium (K) fertilizers, but the actual ratio is much higher for N and lower for P and K. This leads to nutrient deficiencies, soil degradation, and lower crop yields.
  • According to a report by NITI Aayog, the average NPK ratio in India was 8:3:1 in 2015-16, which is far from the recommended ratio of 4:2:1.
• Excessive Use of Nitrogenous Fertilizers: India is the third-largest producer and the second-largest consumer of urea, a nitrogenous fertilizer. However, excessive use of urea has negative impacts on soil health, water quality, and greenhouse gas emissions. Urea also subsidizes the production of other fertilizers, which creates distortions in the fertilizer market.
• Lack of Domestic Production and Dependence on Imports: India has limited domestic resources of P and K fertilizers, and relies heavily on imports from other countries. This makes India vulnerable to fluctuations in global prices and availability of these fertilizers. Moreover, India has not invested significantly in expanding its domestic fertilizer production capacity since the 1990s.
  • According to the annual report of the Department of Fertilizers, India has a domestic production capacity of 24.66 million metric tons of P&K fertilizers, which meets only 50% of the domestic demand.
    • The rest is met through imports from countries like China, Russia, Morocco, Jordan, and Saudi Arabia.
• Inefficient Distribution and Subsidy System: India has a complex and costly system of subsidizing fertilizers to farmers, which involves multiple agencies, intermediaries, and leakages. The subsidy system also does not adequately incentivize farmers to use fertilizers efficiently or adopt organic or bio-fertilizers.
  • The fertilizer subsidy has become a sticky item in the expenditure list of the Union Budget. The government has earmarked Rs 1.75 trillion for fertilizer subsidy in the 2023-24 Budget, above a trillion rupees for a fourth year in a row.
  • The dependence on LNG for fertilizer production exposes India to high and volatile global gas prices, and a soaring fertilizer subsidy bill.
    • The use of LNG in the fertilizer sector was as high as 63% of the total gas consumption in FY 2020-21.

What are the Effects of Improper Utilization of Fertilizers?

• Environmental Pollution: Excess use of fertilizers causes environmental pollution as their residual and unused amounts will become pollutants for air, water, and soil.
  • Eutrophication: Excess use of fertilizers can lead to eutrophication in the water bodies, which is the excessive growth of algae and other aquatic plants that deplete the oxygen level and harm aquatic life.
• Soil degradation: Continuous use of nitrogenous fertilizer alone can reduce the soil fertility and cause deficiencies of other major and micronutrients. It can also affect the soil microflora and fauna that are essential for maintaining the soil quality.
• Reduced Crop Quality: Improper fertilizer application can result in the excessive growth of certain plant parts (e.g., leaves and stems) at the expense of reproductive structures (e.g., fruits and grains), leading to reduced crop quality and yield.
• Groundwater Contamination: Nitrate leaching from overused fertilizers can contaminate groundwater, posing health risks to people who rely on these sources for drinking water. Elevated nitrate levels in drinking water can lead to methemoglobinemia or "blue baby syndrome."
• Health Concerns: Pesticides and herbicides often used in conjunction with fertilizers can pose health risks to farmers and consumers when used improperly or excessively.
• Economic Burden: Excessive fertilizer use can be economically unsustainable for farmers, as it can increase input costs without corresponding increases in crop yields. This can lead to indebtedness among small and marginal farmers.
• Greenhouse Gas Emissions: The production and application of synthetic fertilizers contribute to greenhouse gas emissions, particularly nitrous oxide (N2O), which is a potent greenhouse gas that contributes to climate change.
• Imbalance in Crop Nutrient Uptake: Inappropriate fertilizer application can result in an imbalance of nutrients in the soil, which can affect the nutrient uptake by crops and may require corrective actions in subsequent growing seasons.

How can the PM PRANAM Scheme help reforming the Fertilizer Regime?

• Reduction in Subsidy Bills: PM Pranam can contribute to reducing the government's subsidy bills by promoting alternative or bio-fertilisers. The government aims to set up 10,000 Bio-Input Resource Centres, creating a national-level micro-fertiliser and pesticide manufacturing network.
  • By supporting the production and adoption of these bio-fertilisers, PM Pranam can gradually reduce the financial burden on the government in terms of chemical fertilizer subsidies.
• Fiscal Deficit Control: Lowering subsidy bills through the promotion of PM Pranam can help in controlling India's fiscal deficit. Fiscal deficits can be a significant economic challenge, and reducing subsidies is one way to address this issue.
• Gradual Phase-Out of Chemical Fertiliser Subsidies: PM Pranam can serve as a catalyst for the gradual phase-out of subsidies on chemical fertilizers. By providing support and incentives for the adoption of alternative fertilizers, the government can reduce its financial commitment to chemical fertilizer subsidies.
• Support for Farmer Fertiliser Cooperatives: PM Pranam can help farmer fertilizer cooperatives scale up their production of biofertilizers. This support can lead to increased economies of scale and a more extensive distribution network for alternative fertilizers.
• Incentivizing Sales and Distribution Networks: It's important to work out pricing and margin strategies for biofertilizers to incentivize sales and distribution networks. PM Pranam can facilitate this by providing incentives to cooperatives and businesses involved in biofertilizer production and distribution.
• Demonstration and Certification: PM Pranam can support initiatives to demonstrate the effectiveness of alternative fertilizers on farmer fields. This is crucial for building trust and encouraging farmers to adopt these products. Certification of these bio-fertilisers can also ensure quality and help farmers or their organizations realize better prices for their produce.