Why in News?
The central govt has announced a 140% increase in the subsidy on Di-Ammonium Phosphate (DAP) which is estimated to cost the exchequer an additional Rs 14775 crore in the coming Kharif season alone.
Syllabus–GS3: Issues related to Agriculture Subsidies
- In India, Fertilizers are made available to the farmers at a subsidized and affordable price to help with increase in yield.
- The Department of Fertilizers has subsidized fertilizers in the range of 30% to 70% of its cost.
- The subsidy is passed onto companies manufacturing fertilizers so that farmers get the fertilizers at subsidized MRP.
- The quantum of subsidy varies with type of fertilizer like Urea, DAP etc. The subsidy is given only to those fertilizers which meet the standards laid down by the government.
- The government has enhanced the subsidy on di-ammonium phosphate or DAP fertilisers in order to retain the selling price for farmers at the current level of ₹1200 per bag, following a review meeting on fertiliser prices chaired by Prime Minister Narendra Modi on Wednesday.
- The move, which entails raising the subsidy from ₹500 per bag to ₹1200 per bag of DAP, will raise India’s annual fertiliser subsidy bill of about ₹80,000 crore by ₹14,775 crore as subsidy in the Kharif season, a statement said.
DAP & its importance to Farmers:
- Di-Ammonium Phosphate (DAP) is the second most commonly used fertilizer in India after urea, which is applied just before or at the beginning of sowing as it is high in phosphorus that stimulates root development.
- Without well-developed roots, plants growth is stagnated & takes a long time to mature.
- DAP contains 46% P and 18% nitrogen (N). While there are also other phosphatic fertilisers – single super phosphate (SSP), for instance, has 16% P and 11% sulphur (S) – DAP is the farmer’s preferred choice. This is similar to urea and muriate of potash (MOP), which again have very high N and potassium (K) content of 46% and 60%, respectively.
What is the subsidy scheme in DAP?
- For urea, the MRP is controlled by govt & the subsidy per tonne is varied according to the market. In simple, for urea price fixed but the subsidy is varied.
- But for other fertilisers, the MRP is decontrolled & companies fix their own MRP & govt pays a fixed Subsidy. In other terms, MRP is varied but the Subsidy is fixed.
Subsidy & Pricing Mechanism:
- The subsidy for all non-urea fertilisers varies which is governed by nutrient-based subsidy.
- Depending upon the nutrient content for different fertilisers, the per-tonne subsidy also varies.
- For 2020-21, the centre fixed the NBS rates at 18.8/kg for N, 14.9/kg for P, 10.12/kg for S.
- Till recently when the DAP subsidy for 2020-21 was Rs 10231/tonne, companies were selling DAP at around Rs 24000/tonne because the international prices were at reasonable levels.
- But global prices of fertilisers & inputs have surged over the past 6-7 months, tracking a general bull run in commodities, that has made it unviable for companies to continue selling at the old rates.
- So all the fertilizer companies have announced the hike in their MRP for DAP & other non-Urea fertilizers.
- The hikes were effective from April 1st till the old stock lasts.
- As the old stock running out, the companies started selling the new material at higher rates.
- The farmers realized the extent of the price increase in the May 2nd week.
- The focus fell on DAP because a steep 58% increase was too much.
- The dept of fertilizers had notified NBS rates for 2021-22 on par with last year’s levels, leaving companies little choice but to go ahead with the MRP hikes.
- But a recent meeting chaired by PM on global fertilizers price, the historic decision to increase the subsidy on DAP from the existing Rs 10231/tonne to Rs 24231/tonne.
- The dept of fertilizers too notified a higher NBS rate for P. while keeping those for the N, K, S nutrients unchanged.
- This will enable; le companies to sell DAP at earlier MRP but other fertilizers at hiked MRP.
- Parliamentary standing committee
A parliamentary standing committee recently submitted its report on the ‘study of system of fertilizer subsidy’ in March 2020. Among other things, the committee noted that there was a delay in settlement of subsidy dues. It advocated for DBT of fertilizer subsidy to the farmer instead of the manufacturer.
- Subsidy scheme for fertilizers was first introduced in 1977
Subsidy scheme for fertilizers was first introduced by the Indian Government in 1977 through the Retention Price Scheme (RPS) for indigenous nitrogenous fertilizer units. Subsequently, it was extended to phosphatic and other complex fertilizers and Single Super Phosphate.
The timing of keeping at least DAP prices is good as farmers will start sowing operations with the arrival of the southwest monsoon rains. It also sends positive signals to the farmers in taking up dialogues with govt. Discuss.