Govt. extends special subsidy on DAP

Context: The government has extended a special subsidy of Rs. 3500 per tonne on
di-ammonium phosphate (DAP), which was to end on December 31, for a further
one-year period from January 1, 2025. The pressure is given due to the rupee’s
recent slide against the US dollar, the government has informally frozen the
maximum retail price (MRP) of all non-urea fertilizers. This is despite them
being decontrolled on paper, unlike urea whose MRP has been statutorily fixed
at Rs. 266.50 per 45-kg bag (gst applied) since November 2012. The rupee’s
steep fall has made these informal price caps difficult to sustain. In the case
of DAP, its landed import price of $632 per tonne works out to about Rs. 54,160
at the present exchange rate of Rs. 85.7 to the dollar.

Key points

·       Overview: Fertiliser
companies are being given a subsidy of Rs. 21,911 per tonne on DAP, plus the one-time
special package concession of Rs. 3,500 that has now been extended until
December 31, 2025.

·       Subsidy
of fertilizers in India: Fertilizers provide key nutrients (N, P and K) to
the soil. Important fertilizers are- Urea (N based), DAP (P based) and MOP (K
based). The allocation for fertilizer subsidy for FY24 was budgeted at Rs 1.75
lakh crore in FY24.

·       DBT
in Fertilizers: Under this, farmers would continue to get
fertilizer at subsidised price whereas the fertilizer companies receive
subsidy, only after the fertilizers are sold to farmers by the retailers
through Point of Sale (PoS) machines (linked to the Department of Fertilizers’
e-Urvarak DBT portal) through biometric authentication by Aadhar Card.

·       Issues
of Fertilizer Subsidies: Loss of Fertility - Since the price of Urea
is still regulated, it failed to achieve balanced use of fertilizers and
resulted in loss of fertility of soil and pollution of water bodies.

Breaches WTO AoA
limit - Fertilizer subsidies are treated as Amber box subsidies and breach the
WTO (Agreement on Agriculture) limit of 10%.

Inverted Duty
Structure - The Basic Custom Duty (BCD) and GST rates of finished fertilizers are
more than the raw materials like Sulphuric Acid and Ammonia and Natural gas, a
major input for fertilizers, remains outside GST.

·       Government
initiatives: Neem-coated Urea not only prevented the illegal diversion of urea for
Industrial use but also improved nitrogen-use efficiency by slowing the release
of nitrogen and thereby reducing the consumption.

Introduction of
Nano Urea - Nano Urea contains nitrogen in the form of granules that are a hundred
thousand times finer than a sheet of paper. At this ‘nano’ scale, which is
about a billionth of a metre, materials behave differently than in the visible
realm.

One Nation One
Fertilizer (ONOF) - Under this scheme, all types of fertilizers,
whether it is DAP, NPK or urea will be sold under the brand name of ‘Bharat’.
This will standardise fertilizer brands across the nation irrespective of the
company that manufactures it.

·       Way
Forward: Deregulating the MRP of Urea and paying a fixed per-tonne subsidy linked
to its nutrient content of 46% Nitrogen. Reduce GST rate and customs duty for
raw materials such as Sulphuric Acid and Ammonia for P&K fertilizers to at
least 5%. Need to create separate tariff code for Urea being used for
non-agricultural purposes.