Fertilizer Sector reforms – NBS, bio-fertilizers, Neem coating, etc.

Cabinet nod for ₹1.08 lakh crore kharif Fertilizer Subsidy


From UPSC perspective, the following things are important :

Prelims level : Fertilizer Subsidy

Mains level : India's fertilizer subsidy burden

Central Idea

  • The Union Cabinet has approved a fertilizer subsidy of ₹1.08 lakh crore for the ongoing kharif or monsoon season.
  • ₹38,000 crore will be allocated for Nitrogen, phosphatic and potassic (NPK) fertilizers, while ₹70,000 crore will go towards the urea subsidy.

Fertilizer consumption and subsidies

  • The country’s total consumption of urea is approximately 325 to 350 lakh metric tonnes (LMT).
  • Other fertilizers sold in the country include 100 to 125 LMT of DAP, 100 to 125 LMT of NPK, and 50 to 60 LMT of Muriate of Potash (MoP).
  • The fertilizer subsidy per hectare of land is about ₹8,909, and each farmer receives a subsidy of ₹21,223.
  1. DAP: The actual price of a bag of DAP is ₹4,000, but farmers receive it at a subsidized rate of ₹1,350 per bag, with a subsidy of ₹2,461 per bag.
  2. NPK: This subsidy is ₹1,639 per bag, and the MoP subsidy amounts to ₹734 per bag.
  3. Urea: The Centre spends ₹2,196 per bag of urea.

Fertilizer Subsidy in India

  • Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
  • Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.
  • The rate of subsidy is based on the average price of imported fertilizer in the last six months.

How is the subsidy paid and who gets it?

  • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
  • From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
  • With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

How does this system work?

  • A popular example of how this system works is that of the neem-coated urea fertiliser.
  • Its MRP is fixed by the government at Rs. 5922.22 per tonne.
  • The average cost of domestic production is at Rs 17,000 per tonne. The difference is footed by the centre in the form of subsidy.

What about non-urea fertilizers?

  • The non-urea fertiliser is decontrolled or fixed by the companies.
  • The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).
  • The government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.

Issues with such subsidies

  • Low NUE: Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
  • Groundwater pollution: Consequently, excess usage contaminates groundwater.
  • Overuse beyond prescription: The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
  • Health hazards: For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.


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