Fertiliser Subsidy Reform in India: Challenges and Way Forward
Why in the news
Economists called for an urgent rethink of the fertiliser subsidy, citing its fiscal cost, skewed nutrient use and environmental damage.
About the subsidy
- The government pays makers or importers the gap between cost of production or import and the retail price farmers pay.
- Centred on urea, held artificially cheap; now among India’s largest and most distortionary subsidies.
Why it exists
- Food security: powered the Green Revolution; response ratio about 1:10 in the 1970s.
- Small farmers: over 85% hold small plots and are shielded from global price swings.
- Lower cultivation cost, softer food inflation, a cushion against monsoon failure.
Problems and reforms
| Challenge | Suggested fix |
|---|---|
| Nitrogen use efficiency only 35-40% | Balanced, precision farming with complex fertilisers and fertigation |
| Groundwater nitrate pollution; falling soil organic carbon | Bring urea under Nutrient-Based Subsidy (NBS) to align nitrogen pricing with P and K |
| Response ratio down to about 1:2.7 by 2015 | Move gradually to direct income transfers of the PM-KISAN type |
| 20-25% of urea diverted to non-farm uses | e-vouchers and PoS-based delivery, like e-RUPI |
| Import dependence exposes the bill to energy shocks | Agri Stack targeting by land size, crop and satellite data |