The Hindu Business Line : Reorientation of fertiliser subsidy — An approach based on strategic analysis

Fertiliser subsidy, which was earlier an instrument to ensure affordability by the farmer, must now be used to achieve higher productivity. The subsidy in the contemporary regime has been analysed keeping in mind the farmer, the industry, the Government and the common man.

THE GOVERNMENT extends subsidy to some of the commonly-used chemical fertilisers. Subsidy in the fertiliser sector is primarily for the farmer and is routed through the industry. Subsidy is to make the fertiliser affordable to the farmer.

The use of chemical fertilisers started primarily in the late 1960s and, coupled with hybrid seeds, led to exponential growth in productivity — popularly known as Green Revolution. The introduction of subsidy in this era led to the increase in fertiliser consumption from 1.1 million tonnes (in terms of N, P, K use) in 1966-67 to approximately 17 million tonnes in 2003-04, resulting in foodgrains productivity rising from 644 kg per hectare to almost 1,700 kg.

However, in the late 1990s, fertiliser consumption and productivity appeared to stagnate, while the year-on-year growth in consumption and productivity fluctuated.

With the large-scale use of chemical fertilisers in the 1970s and the 1980s, the average annual growth was 10 per cent-plus, whereas the average annual growth of consumption in the last seven years was only 1.1 per cent. Similar stagnation trends are also being noticed in productivity.

In 1997-98, when a comprehensive subsidy scheme was re-introduced for P and K fertiliser after the de-control era of 1992-1997, no perceptible improvement in consumption was achieved. In such a situation, it is, perhaps, necessary to redefine and re-focus subsidy.

Subsidy, which was earlier an instrument to ensure affordability by the farmer, must now be used to achieve higher productivity.

The fertiliser subsidy in the contemporary regime has been analysed keeping in mind the farmer, the industry, the Government and the common man.

From the farmer's perspective, relevant, apart from affordability, are the availability of choice of product, mechanism to choose the right one based on soil and crop requirement, the marginal return with theincrease in fertiliser consumption, and the availability of funds to satisfy his fertiliser needs. There is a general belief that the farmer is ignorant about the effectiveness of three nutrients — N, P and K. It is presumed that he has a tendency of substituting cheaper, highly subsidised `N' rather using an expensive `P'.

Any increase in the prices of subsidised fertilisers is linked to farmers shying away from fertiliser consumption.

However, in 1974-75, when the farmgate price of urea rose by 90 per cent, the impact on consumption was limited and short-lived. Perhaps, the limiting factor for the farmer today is the availability of a `designed product' rather than affordability.

Fertiliser industry, the next most important stakeholder has, undoubtedly, seen a controlled environment and a protective shield in the past. Needless to say, this was the need of the hour, whereby the industry delivered results and rose to the occasion to create huge capacities during the last 25 years. However, with the opening up of the economy, the focus needs to shift. Despite the infrastructure sector growing, the fertiliser industry is stagnant as consumption is uncertain. We are far behind the world standards in fertiliser consumption and productivity.

The Government, yet another important stakeholder, has been providing an affordable price environment for the farmer. However, of late, the outcome is not on expected lines. The burgeoning subsidy Bill is certainly a cause of concern for the exchequer.

The last, but the most important, stakeholder is the common man. His stake is to get an affordable agriculture produce and, at the same time, not be taxed by the unnecessary subsidy burden.

With this scenario in perspective, there is a need to reorient the subsidy policy to create a win-win situation for all the stakeholders. In its present form, the fertiliser subsidy is product based and supports only major nutrients — N, P, K.

This has yielded results when exponential growth in production demanded higher doses of urea and DAP.

But the need of the hour is `designed product' specific to soil and crop through product innovation, as continuous doses of only N, P, K have depleted the soil off organic mass, micro and minor nutrients. This results in a negative or `nil' response inyield improvements; only the consumption of N, P and K goes up.

The subsidy on traditional products such as urea and DAP, however, leads to production and marketing of these products only. New products are not introduced to match the changed requirement of nutrients. In the absence of production by the primary fertiliser sector, there is no formal network to provide the farmer the necessary minor and micro nutrients.

The informal network of minor players, which is making these products available, has its own limitations. Being in the unorganised sector, there is a big question mark over quality and reach.

Product-based subsidy, primarily to urea and DAP, out-prices a new `designed product' based on soil testing, specific to crop and having a major, minor and micro nutrient mix.

The revised productivity-based approach of subsidy with complete decontrol, including that of maximum retail prices and choice of product to be manufactured given to the industry, can create a competitive market environment.

The industry would move towards extension work leading to growth. A fixed quantum of subsidy will not create shocks for the exchequer, as subsidy reduction would be more than compensated by increased productivity. The farmer with a less subsidised more efficient product would be financially better of.

This is likely to usher in yet another era of growth in consumption, productivity and a win-win situation for all the stakeholders.

(The author is Director — S&D — Ministry of Chemicals and Fertilisers.)

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