The success of PM PRANAM depends on reducing urea usage by farmers

The announcements on urea perpetuate their use by emphatically stating that the extant pricing and subsidy policies will continue.

The Union government made three major policy announcements on June 28, 2023 — continuation of the urea subsidy scheme up to 2025-26 with an outlay of Rs 3.68 lakh crore, continued availability of urea to the farmers at the maximum retail price of Rs 242 per 45 kg bag and a new scheme PM-PRANAM (PM programme for restoration, awareness, nourishment and amelioration of mother earth).  

The first two announcements are in contradiction with the third. While PM-PRANAM seeks to disincentivise the use of chemical fertilisers by giving to the states 50 percent of the savings in subsidy resulting from a reduction in their use, the announcements on urea perpetuate their use by emphatically stating that the extant pricing and subsidy policies will continue. The overarching effect of these policies will also militate against an incentive of Rs 1,500 per metric tonne under the Market Development Assistance (MDA) proposed to support marketing of organic fertilisers.

Pricing Anomaly

The Centre controls the MRP of urea, keeping it much below the cost of production and distribution to ensure farmers get fertilisers at affordable rates. The excess cost over MRP is reimbursed to manufacturers as a subsidy. Urea, a carrier of primary nutrient nitrogen, is a widely used chemical fertiliser and its pricing is politically sensitive. Since the 2000s, the price has largely remained unchanged but for a small hike of 10 percent in 2010 even though costs have risen. As a result, subsidy payments to manufacturers and importers have climbed. The Centre spent around Rs 1.69 lakh crore on urea subsidy (nearly two-thirds of total fertiliser subsidy payment of Rs 2.55 lakh crore) in 2022-23, as the cost of a 45 kg bag was Rs 3,000 against the MRP of Rs 242. Low prices serve to encourage farmers to use urea excessively and subsidy payment based on the ‘actual’ production cost prompts manufacturers to produce more. Urea production has risen over 26 percent from 22.5 million tonnes in 2014-15 to 28.4 million tonnes in 2022-23.

For non-urea fertilisers (these supply phosphate and potash nutrients), the government fixes ‘uniform’ subsidies on a per-nutrient basis for all manufacturers and importers. So, cost escalations push up their MRP. Since 2021-22, the government has sanctioned substantial hikes in subsidy but their legacy handicap vis-à-vis urea continues. For instance, di-ammonium phosphate (DAP) continues to sell at 4.5 times the price of urea. This has led to an imbalance in fertiliser use and deterioration in soil health.   

Wrong Signals

By announcing that farmers will continue to pay Rs 242 per 45 kg bag of urea for three years till 2025-26 and also making adequate provision for subsidy on it, the government has signalled that the policy status quo will continue. It has also signalled that the present discrimination against non-urea fertilisers will continue as subsidy provision has not been made for them.      

The Centre wants states to galvanise all stakeholders to promote natural nutrients such as nano-urea, nano-DAP, organic manure and bio-fertilisers under PM-PRANAM. Additionally, through MDA it aims to promote organic fertilisers, including fermented organic manures (FOM), liquid FOM, and phosphate-rich organic manures, which are by-products of biogas plants set up under the umbrella of the GOBARdhan initiative. However, these schemes won’t deliver as long as the existing policy framework remains intact, which will be so till 2025-26.

To conclude, the government has rightly emphasised the need for shifting away from chemical fertilisers, reducing imbalance in nutrient use and rejuvenating the soil. But this won’t be possible till the existing policy framework is changed. There is an urgent need to remove all controls on fertilisers and give the subsidy directly to farmers using direct benefit transfer.  

Under a decontrolled scenario, all stakeholders will strive to ensure the supply of low-cost fertilisers and their efficient and balanced use by the farmers. This will also trigger a massive shift towards nano–fertilisers which will be available at the current low price of Rs 240 for a 500 ml bottle of nano–urea, equivalent to a 45 kg bag of conventional urea, which doesn’t require subsidy support. Schemes like PM-PRANAM will accelerate such a shift.

Uttam Gupta is a policy analyst. Views are personal, and do not represent the stand of this publication.