Moneycontrol
HomeNewsOpinionThe success of PM PRANAM depends on reducing urea usage by farmers

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

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

July 07, 2023 / 14:14 IST
Story continues below Advertisement
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.

Story continues below Advertisement

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.