Reforming Fertiliser Policy Amid Global Conflict Pressures

Reforming Fertiliser Policy Amid Global Conflict Pressures

Syllabus:

GS-2: Government Policies & Interventions

GS-3: Agricultural Resources ,Mobilization of Resources ,Direct & Indirect Farm Subsidies

Why in the News ?

The ongoing geopolitical tensions, particularly conflicts involving Russia-Ukraine and West Asia, have disrupted global fertiliser supply chains and increased prices. This has exposed India’s heavy import dependence on fertilisers and highlighted the urgent need to reform fertiliser subsidy, pricing, and distribution policies to ensure long-term food security..

Global Conflicts and Fertiliser Supply Vulnerability :

• Geopolitical Disruptions:
  The conflicts in West Asia and between Russia and Ukraine have severely disrupted global fertiliser markets, affecting availability and pricing.
• Supply Chain Instability:
  Fertilisers like urea, DAP (Di-Ammonium Phosphate), and potash depend heavily on imports, making India vulnerable to global supply shocks.
• Strait of Hormuz Risk:
  A significant portion of fertiliser imports and feedstock gas passes through the Strait of Hormuz, making it a critical chokepoint.
• Price Volatility:
  Global urea prices surged by nearly 65%, while LNG prices rose by over 60%, increasing input costs significantly.
• Strategic Lesson for India:
  Ensuring fertiliser security is as important as energy security, especially in times of geopolitical uncertainty.

India’s Heavy Import Dependence on Fertilisers

• High Import Dependence:
  India imports around 70% of its fertiliser requirements, including raw materials and feedstocks. New fertiliser production facilities require environmental clearance under the EIA Notification, adding regulatory complexity to domestic capacity expansion.
• Urea Consumption Pattern:
  India consumes nearly 40 million tonnes (MT) of urea annually, of which about 10 MT is imported.
• Dependence on Imported Gas:
  Even domestically produced urea depends on imported natural gas, making it indirectly import-dependent.
• Phosphatic Fertiliser Constraints:
  Fertilisers like DAP rely on imports from countries like Saudi Arabia, which is becoming increasingly difficult. Import infrastructure in coastal regulation zone areas requires careful environmental planning.
• Strategic Vulnerability:
  This high dependency exposes India to external shocks, threatening agricultural productivity and food security.

Distorted Fertiliser Pricing and Subsidy Regime

• Highly Subsidised Urea:
  Urea is sold at less than $70/tonne in India, compared to global prices of around $795/tonne.
• Price Imbalance:
  This creates a severe distortion where nitrogen (N) is underpriced compared to phosphorus (P) and potassium (K).
• Overuse of Urea:
  Farmers tend to overuse urea due to its low cost, leading to nutrient imbalance in soil.
• Subsidy Burden:
  The fertiliser subsidy bill places a heavy burden on the fiscal system.
• Inefficient Allocation:
  Subsidies are not efficiently targeted, leading to misuse and diversion.

Nutrient Imbalance and Environmental Consequences

• Excess Nitrogen Use:
  India uses excessive nitrogen-based fertilisers relative to phosphatic and potassic fertilisers, violating principles of sustainable agriculture and the goal of a pollution free environment.
• Low Nutrient Use Efficiency (NUE):
  Granular urea has only 35–40% efficiency, meaning most nitrogen is wasted. This inefficiency necessitates comprehensive environmental impact assessment of agricultural practices.
• Environmental Damage:
  Unused nitrogen converts into nitrous oxide, a greenhouse gas 273 times more potent than CO₂. The polluter pays principle should be applied to address this environmental degradation.
• Water Pollution:
  Nitrogen leaching contaminates groundwater, increasing nitrate levels. This requires application of the precautionary principle in fertiliser use policies.
• Health Risks:
  High nitrate levels can cause diseases like blue baby syndrome, thyroid disorders, and diabetes.

Misuse, Diversion, and Arbitrage Opportunities

• Subsidy-Induced Arbitrage:
  The price gap between domestic and global markets leads to illegal diversion of urea.
• Non-Agricultural Use:
  Urea is often diverted for industrial purposes.
• Cross-Border Smuggling:
  Cheap urea is smuggled to neighbouring countries for profit.
• Over-Application by Farmers:
  Farmers often apply more fertiliser than required, driven by low prices.
• Policy Inefficiency:
  This leads to wastage of public funds and inefficient resource utilisation.

Issues in Fertiliser Distribution and Targeting

• Uniform Distribution Problems:
  Fertiliser allocation does not adequately reflect regional crop patterns or soil needs.
• Lack of Tenant Inclusion:
  Schemes like PM-KISAN exclude tenant farmers, who are among the most vulnerable.
• Inadequate Land Records:
  Poor land record systems hinder proper targeting of subsidies.
• Over-Supply in Some Regions:
  Some states receive excess fertilisers, leading to misuse.
• Need for Rational Allocation:
  Distribution should be based on crop requirements and soil health data.

 Need for Structural Reforms in Fertiliser Policy

• Direct Benefit Transfer (DBT):
  Shifting subsidies directly to farmers can improve efficiency and promote environmental democracy by empowering farmers to make informed choices.
• Per-Acre Subsidy Model:
  Linking subsidies to land area rather than fertiliser quantity.
• Inclusion of Tenants:
  Identifying and including actual cultivators is essential.
• Price Rationalisation:
  Freeing fertiliser prices to reflect true costs while incorporating environmental externalities based on environmental jurisprudence.
• Integrated Policy Approach:
  Combining schemes like PM-KISAN with fertiliser subsidies.

Challenges :

•     Identification Issues:
  Difficulty in identifying actual cultivators, especially tenant farmers due to weak land records.
•     Political Resistance:
  Fertiliser subsidies are politically sensitive, making reforms difficult.
•     Farmer Dependence:
  Farmers are heavily dependent on subsidised fertilisers; sudden changes may impact incomes.
•     Implementation Capacity:
  States may lack administrative capacity to implement per-acre DBT systems.
•     Regional Diversity:
  Different cropping patterns across states complicate uniform policy design.
•     Market Volatility:
  Global price fluctuations can disrupt reform efforts.
•     Technological Constraints:
  Lack of widespread soil health data and digital infrastructure.
• Social Equity Concerns:
  Risk of excluding marginal farmers and tenants.

Way Forward :

•     Gradual Subsidy Reform:
  Phasing out price-based subsidies and shifting to income support systems.
•     Strengthening Land Records:
  Digitisation of land records to identify actual beneficiaries.
•     Promoting Balanced Fertilisation:
  Encouraging use of NPK-balanced fertilisers through awareness and incentives.
•     Encouraging Alternatives:
  Promoting bio-fertilisers, nano-urea, and precision farming techniques.
•     Domestic Production Boost:
  Incentivising local production of fertilisers like TSP (Triple Super Phosphate).
•     Technological Integration:
  Use of AI, GIS, and soil health cards for better targeting.
•     Policy Coordination:
  Better coordination between Centre and States.
• International Diversification:
  Diversifying import sources to reduce geopolitical risks.

Conclusion :

India’s fertiliser policy must shift from a price-subsidy-driven model to a farmer-centric, efficient system. Rationalising subsidies, improving targeting, and promoting balanced nutrient use are essential. Without reforms, fertiliser misuse and import dependence will continue to threaten food security and environmental sustainability.

Source:IE

Mains Practice Question :

“India’s fertiliser subsidy regime has led to inefficiencies, environmental damage, and fiscal stress.” Critically examine the need for fertiliser policy reforms in India. Suggest measures to ensure balanced nutrient use, reduce import dependence, and improve subsidy targeting while safeguarding farmer interests.