Fertilizer Sector at a Crossroad: Insights from Economic Surveys and Union Budgets
- Post by: Arjun Kumar
- January 24, 2025
- No Comment
Ajil Mankunnummal
Researcher, Centre for Development Studies, Thiruvananthapuram
Email: ajilmankunnummal@gmail.com
ORCiD: https://orcid.org/0000-0001-6788-0119
| Title: | Fertilizer Sector at a Crossroad: Insights from Economic Surveys and Union Budgets |
| Author(s): | Ajil Mankunnummal |
| Keywords: | Fertilizer sector, Union Budget, Economic Survey, Public Policy, India |
| Issue Date: | 24 January 2025 |
| Publisher: | IMPRI Impact and Policy Research Institute |
| Abstract: | Analyzing the last few Economic surveys and Union budgets, this paper points out two major contradictions in the suggestions and actions of the government for the fertilizer and agriculture sectors. While the government aims to reduce chemical fertilizer use and promote agricultural sustainability through promoting natural and organic farming, the heavy allocation of subsidies to urea and significant investments in conventional fertilizers suggest a contradictory approach. This puts the Indian fertilizer sector at a crossroads, struggling with conflicting policies and actions. |
| Page(s): | 1-5 |
| URL: | https://iprr.impriindia.com/fertilizer-sector-at-a-crossroad/ |
| ISSN: | 2583-3464 (Online) |
| Appears in Collections: | IPRR Vol. 3 (2) [July-December 2024] |
| PDF Link: | https://iprr.impriindia.com/wp-content/uploads/2025/01/I1_Fertilizer-Sector-at-a-crossroads_Ajil-Mankunnummal_IPRR_V3I2_July-Dec-2024.pdf |
(July-December 2024) Volume 3, Issue 2 | 24th January 2024
ISSN: 2583-3464 (Online)
Introduction
Union Budgets and Economic Surveys present the state of the economy and the priorities of the government, hence the policies associated with them. The recently presented Union Budget 2024-25 has identified agriculture as one of the government’s priority sectors and given importance to increasing the productivity and resilience of the sector. Moreover, the Economic Survey 2024 also specifies the need for a sustainable agriculture sector and suggests measures for achieving it.
Such measures and suggestions affect the fertilizer sector which supplies an essential input to the agriculture sector and increases the crops’ productivity too. Analyzing the last few Economic surveys and Union budgets, this paper points out two major contradictions in the suggestions and actions of the government for the fertilizer and agriculture sectors.
Contradiction I
The first contradiction lies in the Economic Survey, 2024’s (Govt of India, 2024a) aim to promote agricultural sustainability by reducing the use of chemical fertilizers and ensuring a balanced nutrient ratio in the soil while simultaneously increasing subsidies for urea, which exacerbates the imbalance in the soil’s nutrient ratio. The NPK ratio in India has worsened, compared to the popular and accepted ratio of 4:2:1 or an estimated ratio of 2.6: 1.4:1 , due to the flawed fertilizer subsidy policies that have been followed over the years (Mankunnummal, 2023). India provides subsidies for Urea products and non-urea products.
The largest produced and consumed fertilizer in India, Urea, is highly subsidized and sold at a rate that the government statutorily fixes which is much less than other fertilizer products. The difference between this rate and the net market realization by the manufacturing units of Urea is given as the Urea subsidy to the manufacturers/importers. The non-urea products come under the Nutrient Subsidy (NBS), where the government fixes the subsidy rate (in Rs/Kg) per nutrient (Nitrogen, Phosphate, Potash, and Sulphur) contained in the non-urea product on an annual basis.
According to the data from Fertiliser Statistics of Fertiliser Association of India, 2023, the NPK ratio of India has deteriorated from 5.9:2.4:1 in 1991–92 to 11.8:4.6:1 in 2022–23, which is much worse than the two ratios above. The disparity across the different zones in India is very significant, where it is 6.2:2.5:1, 34.3:10:1, 7.3:3.3:1, and 13.3:6:1 in the east, north, south, and west zones, respectively.
High price differences between urea (a major source of Nutrient Nitrogen) and other decontrolled products force consumers to go after urea and substitute it for other high-priced fertilizer products like Di-Ammonium Phosphate and complex fertilizers (major sources of nutrients Phosphorous and Potassium) and hence led to an NPK ratio that is highly skewed towards the Nitrogen nutrient.
However, the budget allocated nearly 75% of the fertilizer subsidy to Urea (See Table 1). From 2021-22 to 2024-25, the subsidy shares for Urea increased from 68.3% to 74.9%, while that of the NBS share has decreased from 34.3% to 27.4%.
This structure of allocation will further deteriorate the existing NPK ratio of the soil which contradicts the suggested measure to ensure agricultural sustainability in the country.
| Fertilizer Subsidy Heads | 2021-22 | 2022-23 | 2023-24 (R.E) | 2024-25 (B.E) |
| Indigenous Urea | 36.8% | 49.8% | 54.1% | 61.1% |
| Import of Urea | 31.5% | 17.3% | 15.9% | 13.8% |
| Total Urea | 68.3% | 67.1% | 69.9% | 74.9% |
Contradiction II
The second contradiction is in terms of the promotion of natural farming and the promotion of alternative fertilizers to reduce the consumption of chemical fertilizers while also heavily investing in and subsidizing conventional fertilizers like urea. In the last few years, the government has stressed the need to move towards natural or organic farming. Parliamentary Standing Committee on Chemicals & Fertilizers (2022-23) (Govt of India, 2023c) stresses to reduce urea use by 50 % in agriculture fields for soil health upgradation and gradually reduce the use of chemical fertilizers and eventually stop the use to protect soil health.
The Economic Survey 2021-22 (Govt of India, 2022) also specifies the importance of finding alternative fertilizers and reducing the use of chemical fertilizers in agriculture. Culminating all these, the government proposed a new program in the union budget, 2023-24, (Govt of India, 2023b) which is PM-PRANAM (PM Programme for Restoration, Awareness, Nourishment, and Amelioration of Mother Earth) to promote alternative fertilizers in all the states and union territories and incentivize them in balanced use chemical fertilizers, which is possible through reducing the consumption of Urea, the most used nitrogenous fertilizer in India.
Through the 2023-24 budget, the government started facilitating the farmers to adopt natural farming through Bhartiya Prakritik Kheti Bio-Input Resource Centres. The Budget 2024-25 (Govt of India, 2024b) also aims to initiate 1 crore farmers across the country into natural farming in 2 years. However, the government is adopting conflicting policies through this.
On the one hand, it tries to reduce the consumption of chemical fertilizers through the promotion of natural farming and alternative fertilizers, and on the other hand, it promotes the consumption of conventional fertilizers like Urea by investing heavily in the sector. This can be seen from Figure 1. India is witnessing a massive investment boom mainly in conventional chemical fertilizers like Urea through the Make in India and Aatmanirbhar Bharat schemes, especially since 2020-21 led by the public sector. Fertilizer Industry attracted Rs. 32783 crore investment in 3 years during 2020-21 to 2023-24. Among this, the public sector contributed Rs. 31458 crore which is 95.9 percent.
World Fertilizer Consumption Scenario
However, compared to other countries, India’s plant nutrient consumption is less. Table 2 presents the consumption of nutrients and the yield of paddy and wheat in selected countries in 2021. Countries like China, Bangladesh, Egypt, Korea, and Japan have much higher consumption of plant nutrients per hectare than India and in turn, they do have higher yields per hectare for crops like paddy and wheat than India. Hence, the point of increasing productivity by reducing the consumption of fertilizers in Union budgets and Economic surveys will yield adverse outcomes.
Conclusion
In conclusion, the fertilizer sector in India is at a crossroads, struggling with conflicting policies and actions. While the government aims to reduce chemical fertilizer use and promote agricultural sustainability through initiatives like PM-PRANAM and support for natural farming, the heavy allocation of subsidies to urea and significant investments in conventional fertilizers suggest a contradictory approach. What India needs is scientific farming, which ensures food security in the world’s largest populated country, rather than natural or organic farming. A move away from scientific farming will result in unfavourable outcomes as we have the example of Sri Lanka that gave importance to organic farming. It will be too early to restrict the contributions of fertilizers in enhancing the productivity of agriculture and ensuring food security in the country through implementing these conflicting policies in India.
References
Chand, R., S, Pavithra. (2015). Fertiliser Use and Imbalance in India-Analysis of States. Economic & Political Weekly (L No 44), 98-104.
Mankunnummal, Ajil. (2023), Nutrient Imbalance in India. Economic & Political Weekly (LVIII No 52), 4-5.
Ministry of Chemicals and Fertilizers. Nano-fertilizers for Sustainable Crop Production and Maintaining Soil Health, Standing Committee on Chemicals & Fertilizers (2022-23). Lok Sabha Secretariat, New Delhi.
Ministry of Finance. Budget Speech (2023-24).
Ministry of Finance. Budget Speech (2024-25).
Ministry of Finance. Economic Survey (2021-22). Department of Economic Affairs, Economic Division.
Ministry of Finance. Economic Survey (2022-23), Department of Economic Affairs, Economic Division.
Ministry of Finance. Economic Survey 2023-24. Department of Economic Affairs, Economic Division.
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