Cabinet Approves Nutrient Based Subsidy Rates

The Cabinet Committee on Economic Affairs (CCEA) has approved the proposal of the Department of Fertilizers for fixation of NBS rates for Phosphatic and Potassic (P&K) Fertilizers for the year 2019-20.

Cabinet Committee on Economic Affairs

  • Chaired by the Prime Minister, CCEA lays down the priorities for public sector investment and considers specific proposals for investment of not less than specific levels (Rs. 3 Billion at present) as revised from time to time.
  • It has a mandate to review economic trends on a continuous basis, as also the problems and prospects, with a view to evolving a consistent and integrated economic policy framework for the country.
  • It also directs and coordinates all policies and activities in the economic field including foreign investment that require policy decisions at the highest level.
  • The approved rates for NBS will be Rs 18.90 per kg for N (Nitrogen), Rs 15.21 per kg for P (Phosphorus), Rs 11.12 per kg for K (Potash) and Rs 3.56 per kg for S (Sulphur).
  • The expected expenditure for release of subsidy on P&K Fertilizers during 2019-20 will be Rs. 22875.50 crore.

Background

  • Government provides fertilizers, Urea and 21 grades of P&K fertilizers to farmers at subsidized prices through fertilizer manufacturers/importers.
  • In accordance to its farmer friendly approach, the Govt is committed to ensure the availability of P&K fertilizers to farmers on affordable price.
  • The subsidy on P&K fertilizers is being governed by NBS Scheme from 2010.

The Nutrient Based Subsidy (NBS) Scheme

  • It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.
  • Under NBS, a fixed amount of subsidy decided on an annual basis, is provided on each grade of subsidized Phosphatic & Potassic (P&K) fertilizers depending on its nutrient content.

NBS Analysis

  • The NBS scheme, was sought to deregulate subsidy on non-urea fertilizers and expected to reduce the subsidy burden substantially.
  • While the NBS certainly did not lead to any decline in subsidy on fertilizer, it did lead to worsening of soil nutrient quality, along with shortages and price increases in all three types of major nutrients, namely Nitrogenous, Phosphoric and Potassic.
  • An undesirable outcome has been the change in fertilizer mix. As against the recommended Nitrogen (N): Phosphorous (P): Potassium (K) ratio of 4:2:1, the NPK ratio in 2013-14 was 8.2:3.2:1.
  • The environmental damage caused by the inappropriate use of fertilizers is certainly a matter of serious concern in many states.
  • 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.
  • The bigger challenge is to change the pattern of fertilizer use. This not only involves revamping and re-energizing the extension services but also changing the NBS suitably to remove the price distortion caused by it.

Source: PIB