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Subject: Economics

  • Corporates need commitment to sustainability and community alongside pursuit of profit

    The article calls the corporates to adopt new capitalism in the aftermath of the pandemic which involves alongside the profit motives the commitment to giving back.

    Capitalism in the aftermath of Covid-19

    • The 2008 crisis was caused by the excesses of global finance, whereas the 2020 economic crisis was caused by a pandemic that spilled over to the economy.
    • While the current pandemic is the first of its kind in nine decades, the dire economic consequences are very similar to that global financial crisis just a decade ago.
    • What is also similar is the policy response that has followed both the 2008 and 2020 crises — the Keynesian prescription of the government stimulating a depressed economy by using monetary and fiscal instruments.
    • Cheap liquidity preserves the wealth of the asset-owning classes even as the real economy stalls.
    •  However, over-stretched governments head towards a debt/fiscal crisis which eventually forces austerity, hitting those dependent on government handouts.
    • It is this inequality in outcomes that is unlikely to happen this time.
    • Already, the G-7 has pledged to maintain a minimum level of corporation tax.
    • There have also been calls for additional taxation, particularly on the assets of the wealthy.

    What corporates can do

    • Instead of waiting for governments to react under popular pressure, corporates must themselves set out on a different path.
    • Covid-19 has brought home the fragility of human life and the deeply interconnected fate of humanity.
    • Outside of the pandemic, there is no better example of this than climate change which, if left uncontrolled, could devastate the world.
    • While governments negotiate, corporates must respond with voluntary commitments to mitigate climate change.
    • Climate change mitigation should be at the core of all business models going forward.
    • In addition, promoters need to come forward to pledge more of their wealth towards philanthropy.
    •  India implemented the concept of corporate social responsibility as part of its legal framework a decade ago.

    Investor pressure for action towards environment

    • The ability of the private sector to work for the greater good seems implausible.
    • But it is already happening — not because of government regulation, but because of investor pressure.
    • Progressive actions towards the environment and society are being rewarded by investors.
    • The absence of such progressive actions is being penalised.
    • Market forces are, after all, embedded in society.
    • They are perfectly capable of moving beyond profit.

    Threat of new-age tech capitalism

    • The real challenge for society, government and capitalists comes from the new-age tech capitalists.
    • They are the new monopolists or oligopolists who don’t exercise their power over society by charging a supernormal price.
    • In fact, a lot of them provide goods and services at hefty discounts.
    • Instead, what they seek is to control information and influence choices.
    • Many of the promoters of such enterprises are philanthropists but society and governments have a different set of concerns on how they exercise power.

    Conclusion

    An imperfect world is passing through a perfect storm. There will be big changes on the other side. Capitalism will survive. It could thrive by choosing its own pathway or it could stumble along under the hammer of big government fuelled by populist backlash.

  • How green are India’s agri-exports?

    The article highlights the unsustainability of agri-exports owing to their water-intensive nature and subsidies provided in their production.

    India’s agri-exports

    • Agri-exports touched $41.8 billion in FY 2020-21, registering a growth of 18 per cent over the previous year.
    • Amongst the various agri-commodity exports, rice ranks first with 17.7 million tonnes valued at $8.8 billion, roughly 21 per cent of the total value of agri-exports.
    • It is followed by marine products ($6 billion), spices ($4 billion), bovine (buffalo) meat ($3.2 billion) and sugar ($2.8 billion).

    Trend analysis of agri-exports

    • During the last seven years, agri-exports have remained lower than the level reached in FY2013-14 ($43.3 billion).
    • That was when the highest agri-trade surplus (exports minus imports) was generated ($27.8 billion).
    • That was also when Indian agriculture was most globally integrated, with agri-trade (exports plus imports) touching 20 per cent of the agri-GDP.
    • It has slid to 13.5 per cent by FY2020-21, indicating India is becoming less globally competitive in exports and more protectionist in imports, presumably in the name of Atmanirbhar Bharat.
    • It is high time to review current agri-trade policies and accompanying tariff structures.

    Why sustainability of agri-exports is a concern?

    • From a strategic point of view, however, one must ask whether this growth rate can be sustained over a longer period, and the implications it has for Indian agriculture.
    • Water consumption: India is a water-stressed country with per capita water availability of 1,544 cubic metres in 2011, down from 5,178 cubic metres in 1951.
    • It is well known that a kg of sugar has a virtual water intake of about 2,000 litres.
    • In 2020-21, India exported 7.5 million tonnes of sugar, implying that at least 15 billion cubic metres of water was exported through sugar alone.
    • Rice, needs around 3,000 to 5,000 litres of water for irrigating a kg, depending upon topography.
    • Also, rice cultivation contributes to more than 18 per cent of the GHG emission generated from agriculture.
    • Subsidies: Power and fertiliser subsidies account for about 15 per cent of its value in states like Punjab and Haryana.
    • If these subsidies are withdrawn, rice will not be as preferred a crop with farmers as it is today.

    Way forward

    •  Farming practices such as alternate wetting drying (AWD), direct-seeded rice (DSR) and micro-irrigation will have to be taken up on a war footing.
    • Farmers may be incentivised and rewarded to save water, switch from paddy and sugar to other less water guzzler crops, and reduce the carbon footprint.
    • It is high time that policymakers revisit the entire gamut of rice and sugar systems from their MSP/FRP to their production in an environmentally sustainable manner.
    • At least in the case of rice, procurement will have to be limited to the needs of PDS, and within PDS, it is high time to introduce the option of direct cash transfers.

    Consider the question “Rice and sugar forms the part of India’s agri-basket. However, there are concerns over their sustainability. What are the reasons for concerns and suggest the measure to deal with these concerns” 

    Conclusion

    To maintain the sustainability of the agri-exports, crops must be produced efficiently and with minimal subsidies. The government needs to take steps to ensure that with rice and sugar.

  • Issues faced by Discoms in India

    The article highlights the need for frequent financial aids to the discoms by the Centre and discusses the factors responsible for this.

    Frequent rescue packages for discoms

    • Recently, there was a sharp decline in the dues owed by power distribution companies, discoms, to power generating companies.
    • Discoms have paid off their dues in part by drawing down a liquidity facility arranged by the Centre last year.
    • This rescue package was arranged to prevent the entire power sector chain from suffering because of the discoms’ inability to meet their obligations. 
    • In the initial years after the introduction of UDAY some states did, in fact, witness an improvement in their financial and operational indicators.
    • But it wasn’t sustained, There has been a sharp deterioration in several parameters.

    Low performance of Discoms

    1) On the basis of AT&C losses

    • A key metric to measure the performance of discoms is AT&C losses.
    • The UDAY scheme had envisaged bringing down these losses to 15 per cent by 2019.
    • However, as per data on the UDAY dashboard, the AT&C losses currently stand at 21.7 per cent at the all-India level.
    • In the case of the low-income north and central-eastern states — Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh — the losses are considerably higher.

    2) On the basis of cost and revenue per unit

    • On another metric — the gap between discoms’ costs and revenues — the difference, supposed to have been eliminated by now, stands at Rs 0.49 per unit in the absence of regular and commensurate tariff hikes.
    • For the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

    What are the factors responsible for inefficiencies?

    1) Electrification push without cost restructuring

    • The government’s push for ensuring electrification of all have contributed to greater inefficiency.
    •  To support higher levels of electrification, cost structures need to be reworked, and the distribution network would need to be augmented — in the absence of all this, losses are bound to rise.

    2) Economic fallout of the pandemic

    • With demand from industrial and commercial users falling, revenue from this stream, which is used to cross-subsidise other consumers, has declined, exacerbating the stress on discom finances.
    • A turnaround in the economy will provide some relief, but will not form the basis of a sustained improvement in finances.

    3) Lack of consumer data and metering

    •  Even six years after UDAY was launched, various levels in the distribution chain — the feeder, the distribution transformer (DT) and the consumer — have not been fully metered.
    • As a result, it is difficult to ascertain the level in the chain where losses are occurring.
    • Other than discoms in metros like Delhi and Mumbai, there is also limited data on which consumer is attached to which DT.
    • This lack of data makes it difficult to isolate and identify loss-making areas and take corrective action.

    4) No tariff hike

    • The continuing absence of political consensus at the state level to raise tariffs or to bring down AT&C losses signal a lack of resolve to tackle the issues plaguing the sector.

    Way forward

    • One of the solution centres around a national power distribution company.
    • Another option is to deduct discom dues, owed to both public and private power generating companies, from state balances with the RBI forcing states to take the necessary steps to fix discom finances.
    • The Centre has linked additional state borrowings to the completion of distribution reforms to incentivise states to act.

    Consider the question “Despite several efforts by the Centre to improve the efficiency, discoms continue to perform dismally requiring frequent financial aids. What are the factors responsible for this? Suggest the way forward.” 

    Conclusion

    Short of radical measures — privatisation remains a chimera — it is difficult to see how a sustainable turnaround in the financial and operational position of discoms can be engineered. As the amounts involved rise, minor tinkering isn’t likely to produce the desired results.

    Back2Basics: AT&C losses

    • Distribution loss consists of two parts:
    • a. Technical loss
    • b. Commercial loss.
    • It is also called AT&C loss.
    • AT&C loss is nothing but the sum total of technical and commercial losses and shortage due to non-realization of billed amount.
    • AT&C Loss = (Energy input – Energy billed) * 100 / Energy input.

  • World Competitiveness Ranking 2021

    India’s position has remained unchanged at 43 for the third year in a row in the World Competitiveness Ranking by Switzerland-based Institute for Management Development (IMD).

    World Competitiveness Ranking

    • The IMD World Competitiveness Ranking ranks 64 economies and assesses the extent to which a country promotes the prosperity of its people by measuring economic well-being through hard data and survey responses from executives.
    • The ranking examines four factors — economic performance, government efficiency, business efficiency, and infrastructure.
    • The top-performing economies are characterized by varying degrees of investment in innovation, diversified economic activities, and supportive public policy.

    India’s performance

    • Among the BRICS nations, India is ranked second after China (16), followed by Russia (45th), Brazil (57th) and South Africa (62th).
    • Among the four indices used, India’s ranking in government efficiency increased to 46 from 50 a year ago, while its ranking in other parameters such as economic performance (37), business efficiency (32) and infrastructure (49) remained the same.
    • India has maintained its position for the past three years but this year, it had significant improvements in government efficiency.

  • [pib] Indian Certification of Medical Devices (ICMED) Plus Scheme

    The Quality Council of India (QCI), and the Association of Indian Manufacturers of Medical Devices (AiMeD) have added further features to the ICMED Scheme for Certification of Medical Devices.

     ICMED 13485 PLUS

    • The ICMED 13485 PLUS, as the new scheme has been christened, will undertake verification of the quality, safety and efficacy of medical devices.
    • It was first launched in 2016.
    • It has been designed to integrate the Quality Management System components and product-related quality validation processes through witness testing of products with reference to the defined product standards and specifications.
    • This is the first scheme around the world in which quality management systems along with product certification standards are integrated with regulatory requirements.
    • This scheme will be an end-to-end quality assurance scheme for the medical devices sector in India.

    Details of the scheme

    • This scheme provides the much-needed institutional mechanism for assuring product quality and safety.
    • It will go a long way in assisting the procurement agencies to tackle the challenges relating to the menace of counterfeit products and fake certification.
    • This will also help in eliminating the circulation and use of sub-standard medical products or devices of doubtful origin that could prove to be serious health hazards.

  • Recovery takes more than reforms

    The article takes an overview of the impact of the second covid wave and suggests the need for more public spending.

    Impact of reforms in recovery

    • Overlapping State-level lockdowns that started in April have now lasted for almost as long as the nationwide lockdown of 2020, impacting the economy.
    • Output may well have contracted in the beginning of this year.
    • So, though recovery will eventually come, it could be W-shaped rather than V-shaped.
    • It is asserted that the economy will recover due to the reforms planned or already implemented by the government.
    • Since 1991, the term ‘reforms’ has been used to mean both policy changes that remove restrictions on private sector activity in certain areas and those that increase profits in existing lines of production.
    • Recent examples of such reforms include the Atmanirbhar Bharat Abhiyaan launched in 2020 and the significant lowering of corporate tax in 2019, respectively.
    • However, more reforms may be ineffective in spurring recovery.
    • Presently for the private sector is not undertaking investment given their expectation of the state of the economy in the near future, upon which their revenue will depend.

    Public expenditure

    • In February, believing that the peak of the epidemic had been crossed, the government reverted to fiscal consolidation or the paring down of the fiscal deficit.
    •  Accordingly, it raised its budgeted expenditure by less than 1% in the last Budget.
    • But now, with a possible further contraction of the economy, to continue with the frigid fiscal stance would be disastrous.
    • Data from the Centre for Monitoring Indian Economy show that unemployment has risen in May, indicating slack demand for output.
    • With this knowledge, the private sector is unlikely to respond with alacrity to liberalising reforms.

    Way forward

    • The objective is to revive the economy, public spending is the instrument and the funding must be found.
    •  It need not involve money creation.
    • India’s public debt is low by comparison with the OECD countries, and debt financing remains an option. 
    • Even if money financing is adopted, it need not cause accelerating inflation.
    • How the expansion is financed is less relevant for inflation at least in the near term. 

    Consider the question “Are the economic reforms enough to ensure the recovery of the economy? Also, examine the importance of public spending for economic recovery.”

    Conclusion

    Reforms albeit important for the economy in long run, may not be much effective in an economy battered by the pandemic. What we need is public spending and welfare measures.

  • [pib] Chennai–Kanyakumari Industrial Corridor (CKIC)

    The Asian Development Bank (ADB) and the Centre have signed a $484 million loan to improve transport connectivity and facilitate industrial development in the Chennai–Kanyakumari Industrial Corridor (CKIC).

    About CKIC

    • CKIC is part of India’s East Coast Economic Corridor (ECEC), which stretches from West Bengal to Tamil Nadu.
    • The project will upgrade about 590 km of state highways in the CKIC influence areas that cover 23 of the 32 districts between Chennai and Kanyakumari in Tamil Nadu.
    • It connects India to the production networks of South, Southeast, and East Asia.
    • ADB is the lead partner in developing ECEC.

    Answer this PYQ in the comment box:

    Q. With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements:

    1. AIIB has more than 80 member nations.
    2. India is the largest shareholder in AIIB.
    3. AIIB does not have any members from outside Asia.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

    Significance of CKIC

    • The project is part of the priority infrastructure projects identified for corridor development under the ADB-supported CKIC comprehensive development plan.
    • Enhanced connectivity of industrial hubs with hinterland and ports will particularly help increase the participation of Indian manufacturing in global production networks and global value chains.
    • The project will also strengthen road safety improvement programs through advanced technologies for road monitoring and enforcement.
    • In addition, the project will help improve the planning capacity of Tamil Nadu’s Highways and Minor Ports Department.

    Back2Basics: Asian Development Bank

    • The ADB is a regional development bank established on 19 December 1966 which is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.
    • The company also maintains 31 field offices around the world to promote social and economic development in Asia.
    • From 31 members at its establishment, ADB now has 68 members.
    • The ADB was modeled closely on the World Bank and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.

  • Direct Tax collections surge in 2021-22

    India’s direct tax collections in the first two and a half months of 2021-22 stand at nearly ₹1.86 lakh crore, double the collections over the same period of last year that was affected by the national lockdown.

    Surge in direct tax collections

    • The jump in the direct tax collections reflects healthy exports and a continuation of various industrial and construction activities.
    • This supports our expectation that GDP will record a double-digit expansion.

    What are Direct Taxes?

    • A type of tax where the impact and the incidence fall under the same category can be defined as a Direct Tax.
    • The tax is paid directly by the organization or an individual to the entity that has imposed the payment.
    • The tax must be paid directly to the government and cannot be paid to anyone else.

    Answer this PYQ in the comment box:

    Q.All revenues received by the Union. Government by way of taxes and other receipts for the conduct of Government business are credited to the:

    (a) Contingency Fund of India

    (b) Public Account

    (c) Consolidated Fund of India

    (d) Deposits and Advances Fund

    Types of Direct Taxes

    The various types of direct tax that are imposed in India are mentioned below:

    (1) Income Tax

    • Depending on an individual’s age and earnings, income tax must be paid.
    • Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
    • The taxpayer must file Income Tax Returns (ITR) on a yearly basis.
    • Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.

    (2) Wealth Tax

    • The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
    • In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
    • Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
    • Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.

    (3) Estate Tax

    • It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.

    (4) Corporate Tax

    • Domestic companies, apart from shareholders, will have to pay corporate tax.
    • Foreign corporations who make an income in India will also have to pay corporate tax.
    • Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India is taxable.
    • The below-mentioned taxes are also included under Corporate Tax:
    1. Securities Transaction Tax (STT): The tax must be paid for any income that is earned via security transactions that are taxable.
    2. Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
    3. Fringe Benefits Tax: For companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
    4. Minimum Alternate Tax (MAT): For zero tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.

    (5) Capital Gains Tax:

    • It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and home come under capital assets.
    • Based on its holding period, tax can be classified into long-term and short-term.
    • Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
    • Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

    Advantages of Direct Taxes

    The main advantages of Direct Taxes in India are mentioned below:

    • Economic and Social balance: The Government of India has launched well-balanced tax slabs depending on an individual’s earnings and age. The tax slabs are also determined based on the economic situation of the country. Exemptions are also put in place so that all income inequalities are balanced out.
    • Productivity: As there is a growth in the number of people who work and community, the returns from direct taxes also increases. Therefore, direct taxes are considered to be very productive.
    • Inflation is curbed: Tax is increased by the government during inflation. The increase in taxes reduces the necessity for goods and services, which leads to inflation to compress.
    • Certainty: Due to the presence of direct taxes, there is a sense of certainty from the government and the taxpayer. The amount that must be paid and the amount that must be collected is known by the taxpayer and the government, respectively.
    • Distribution of wealth is equal: Higher taxes are charged by the government to the individuals or organizations that can afford them. This extra money is used to help the poor and lower societies in India.

    What are the disadvantages of direct taxes?

    • Easily evadable: Not all are willing to pay their taxes to the government. Some are willing to submit a false return of income to evade tax. These individuals can easily conceal their incomes, with no accountability to the law of the land.
    • Arbitrary: Taxes, if progressive, are fixed arbitrarily by the Finance Minister. If proportional, it creates a heavy burden on the poor.
    • Disincentive: If there are high taxes, it does not allow an individual to save or invest, leading to the economic suffering of the country. It does not allow businesses/industry to grow, inflicting damage to them.

  • Ordinance Factory Board corporatization gets Cabinet approval

    Addressing a long-pending reform, the Union Cabinet has approved a plan to corporatize the Ordnance Factory Board (OFB).

    Ordnance Factory Board (OFB)

    • OFB consisting of the Indian Ordnance Factories is a government agency under the control of the department of defence production (DDP).
    • It is engaged in research, development, production, testing, marketing and logistics of a product range in the areas of air, land and sea systems.
    • OFB comprises 41 ordnance factories, nine training institutes, three regional marketing centres and four regional controllers of safety, which are spread all across the country.

    Why are OFBs significant?

    • OFB is the world’s largest government-operated production organization and the oldest organization in India.
    • It has a total workforce of about 80,000.
    • It is often called the “Fourth Arm of Defence” and the “Force Behind the Armed Forces” of India.
    • OFB is the 35th largest defence equipment manufacturer in the world, 2nd largest in Asia, and the largest in India.

    Why corporatization?

    • Once implemented, the OFB, the establishment of which was accepted by the British in 1775, will cease to exist.
    • It is a major decision in terms of national security and also make the country self-sufficient in defence manufacturing as repeatedly emphasized by PM.
    • This move would allow these companies autonomy and help improve accountability and efficiency.
    • This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialization in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.

    Adhering to past recommendations

    • There have been several recommendations by high-level committees in the past for corporatising it to improve efficiency and accountability.

    What about employees?

    • All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation.
    • The pension liabilities of the retirees and existing employees would continue to be borne by the government.

    How would this be accomplished?

    • The 41 factories would be subsumed into seven corporate entities based on the type of manufacturing.
    • The ammunition and explosives group would be mainly engaged in producing ammunition of various calibre and explosives, with huge potential to grow exponentially.
    • Similarly, the vehicles group would mainly engage in producing defence mobility and combat vehicles such as tanks, trawls, infantry and mine protected vehicles.

  • [pib] Nutrient Based Subsidy (NBS) for Phosphatic & Potassic (P&K) Fertilizers

    The Union Cabinet has approved the proposal of the Department of Fertilizers for fixation of Nutrient Based Subsidy Rates for P&K Fertilizers for the year 2021-22.

    Key Points

    About Di-Ammonium Phosphate (DAP):

    • DAP is the second most commonly used fertiliser in India after urea.
    • Farmers normally apply this fertiliser just before or at the beginning of sowing, as it is high in phosphorus (P) that stimulates root development.
    • DAP (46% P, 18% Nitrogen) is the preferred source of Phosphorus for farmers. This is similar to urea, which is their preferred nitrogenous fertiliser containing 46% N.

    About Subsidy Scheme for Fertilisers:

      • Under the current scheme, the MRP of Urea is fixed but the subsidy can vary while MRP of DAP is decontrolled (i.e subsidy is fixed but the MRP can vary).
      • All Non-Urea based fertilisers are regulated under Nutrient Based Subsidy Scheme.

    About Nutrient-Based Subsidy (NBS) Regime:

      • Under the NBS regime – fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
      • Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
      • The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
      • NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.
        • This would improve soil health and as a result the yield from the crops would increase, resulting in enhanced income to the farmers.
        • Also, as the government expects rational use of fertilizers, this would also ease off the burden of fertilizer subsidy.
      • It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.

    Issues Related to NBS:

    1.Imbalance in Price of Fertilisers:

    • Urea is left-out in the scheme and hence it remains under price control as NBS has been implemented only in other fertilizers.
    • There is an imbalance as the price of fertilizers (other than urea) — which were decontrolled have gone up from 2.5 to four times during the 2010-2020 decade.
    • However, since 2010, the price of urea has increased only by 11%. This has led to farmers using more urea than before, which has further worsened fertilizer imbalance.

    2.Costs on Economy and Environment :

    Fertilizer subsidy is the second-biggest subsidy after food subsidy, the NBS policy is not only damaging the fiscal health of the economy but also proving detrimental to the soil health of the country.

    3.Black Marketing :

    • Subsidised urea is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers.
    • It is being smuggled to neighbouring countries like Bangladesh and Nepal.

    Implications of Increasing the Subsidy on DAP :

    • As farmers will start sowing operations for Kharif Crops, it is highly important for them to get the fertilisers at subsidised rate so as to keep inflation at check.
    • Politically, too, to turn down the farmer protests, during the time of the Covid’s second wave, is the last thing the government would want.