Reforming India's Fertiliser Policy
Prime Minister has initiated several reforms in areas like income tax, GST, and labour laws, aiming for sustained GDP growth above 7% amidst geopolitical risks. However, agriculture remains largely unreformed, particularly with the burgeoning fertiliser subsidy, which demands urgent attention.
Current Fertiliser Subsidy Scenario
- The fertiliser subsidy is expected to reach Rs 2 lakh crore by FY26.
- This subsidy is the second-largest budget item, after the food subsidy, and exceeds the Ministry of Agriculture's allocation.
- There is a heavy import dependence for fertiliser raw materials:
- 78% for natural gas used in urea production.
- 90% for phosphatic fertilisers.
- Total reliance on potash imports.
Issues with Urea Subsidy
- Urea receives about two-thirds of the fertiliser subsidy, sold at Rs 242 per 45-kg bag.
- This leads to excessive use of urea, skewing the N:P:K ratio to 10.9:4.4:1, away from the recommended 4:2:1.
Comparative Analysis with China
- China has a smaller cropland base but a higher agricultural GVA of $1.27 trillion compared to India's $0.63 trillion.
- China's fertiliser use is more balanced, with an N:P:K ratio of 2.6:1.1:1.
Policy Recommendations
- Gradually dismantle price controls and provide direct income support to farmers.
- Introduce urea under the Nutrient-Based Subsidy (NBS) regime to correct price signals.
- Identify tenant farmers through integrated data, supported by AI and machine learning techniques.
Potential Benefits of Reform
- Annual savings of Rs 40,000 crore, redirectable to agricultural R&D and irrigation.
- Increased productivity and rural demand through balanced nutrient use and precision farming.
The urgency for reform is underscored by the fiscal and environmental challenges posed by the current subsidy system. Bold policy changes could set in motion a virtuous cycle of agricultural growth and rural development.
