Fertilizer Subsidy

With an increase in the global rate of chemicals, the Government of India declared to increase the 2021-2022 fertilizer subsidies of India to more than 1.55 trillion Rupees. The amount is almost double the budget for fertilizer subsidies for this fiscal year ending on March 31. The Minister of Chemicals and Fertilizers has addressed initiatives of the Department of Fertilizers for making India Atmanirbhar in Fertilizers.

The Government planned to engage the alternative fertilizers to meet the demand of 60% of the country’s workforce. The idea to use alternative fertilizers is aided by the Market Development Assistance (MDA) Policy. An expansion of the MDA policy was demanded to include organic wastes like Biogas, Green manure, compost, slurry, etc. Thus, the expansion of the MDA Policy complements the initiative of Swachh Bharat Abhiyan.

Questions on Fertilizer Subsidy can be expected in the IAS Exam paper. So, aspirants must go through the following sections carefully.

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Context of Fertilizer Subsidy India

India’s agricultural sector, the top importer of urea, accounts for 15% of the total $2.7 trillion economies and is a major buyer of Diammonium Phosphate (DAP). The Government extends financial support to some of the fertilizer companies like National Fertilizer Limited, Rashtriya Chemicals and Fertilizers Limited, Chambal Fertilizers and Chemicals Limited, which sells fertilizers below the market rates. India consumed 61 million tonnes of fertilizers in the fiscal year 2020 (FY20), which increased by 5 million tonnes in FY21.

The Centre pays fertilizer subsidies based on the cost of production. The companies set the Maximum Retail Price (MRP) on the non-urea fertilizers. The Centre pays a per-tonne subsidy on nutrients to ensure the farmers can access the non-urea fertilizers.

Important Events Related to Fertilizer Subsidy to Farmers

The Centre is restricting the number of bags of fertilizers a farmer can buy during any cropping season. The Government is trying to cap the total number of fertilizer bags under the subsidy system that any farmer can buy during a Rabi or a Kharif season. Such attempts are taken to minimize retail-level diversion and large purchases by con-farmers.

The Centre decided a reasonable cap for 100 bags of fertilizers is enough to cover a single cropping season for 20-acre farmers. On exceeding 100 bags, the farmers are not aided by fertilizer subsidy in India. The farmers buy fertilizers at MRP below their normal supply-and-demand-based market rates. In essence, the difference in the cost payable by the farmers is provided as a Fertilizer subsidy to the farmers, which in turn goes to the company.

Candidates preparing for UPSC 2022 must remember this chronology thoroughly:

  • Direct Benefit Transfer 2018: This subsidy mechanism dictates that fertilizer subsidies to fertilizer companies are subject to the retailers’ actual sales to the farmers. Department of Fertilizer’s e-Urvarak portal links all the retailers’ Points of Sale (PoS). The fertilizer subsidy to farmers is given on successful approval of the Aadhaar or Kishan Credit Card (KCC). On the other hand, the company gets the fertilizer subsidy in India on getting registered on the DBT portal.
  • Goods and Service Tax (GST): Farmers need to pay charges other than the MRP on fertilizers, including GST and other tax inputs. Almost 12% is charged for provisions like tractors, agricultural instruments, various irrigation systems of pumps and drips, etc. An additional 18% is required for crop production chemicals. Moreover, Excise and Value Added tax on diesel is required. Unlike other businesspersons, farmers cannot claim any input tax credit based on their sales. No GST is applicable to farm produce.

The “no denial” policy of the Government allows anyone with a PoS machine to purchase any quantity of fertilizer. Such loopholes keep the actual and deserving farmers from getting the full benefit of the fertilizer subsidy in India. Another loophole in the restriction plan is that a person can buy 100 bags during each purchase. Still, the Centre did not designate how many times the person can avail fertilizers.

Fertilizer subsidy UPSC is a topic no aspirants should leave out. It is vital for general knowledge and hence, should be included in their UPSC notes.

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Frequently Asked Questions on Fertilizer Subsidy


How are fertilizers containing urea prone to diversion?

Being super-subsidized, urea fertilizers are prone to diversions by unintended beneficiaries in non-agricultural uses. For instance, urea fertilizers may be used as a cheap protein source by animal feed manufacturers.


What measures can be taken to minimize the diversion?

Approval for per-acre fertilizer subsidy to farmers can be made through which the farmers can purchase the required amount of fertilizers. The amount of fertilizer subsidy could vary depending upon the type of crops.


Why cannot farmers claim any input tax credit?

Since GST is not applicable for farm produce, a farmer cannot claim any input tax credit for their product sale.


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