India eyes new fertilizer policy to reduce import dependence

With Budget 2023-24 just around the corner, the Indian agriculture sector is expecting the announcement of new fertilizer policy. Niti Aayog has set up a task force to examine production and promotion of bio-fertilizers and organic fertilizers.

The Department of Fertilizers expects special incentives to set up fertilizer units along with reduced import duties on raw material. The industry also expects incentives for the promotion of the organic fertilizer industry.

Image Credit: Shutterstock

The Indian government is working on a national policy to boost local manufacturing of fertilizers and reduce dependency on imports. A roadmap for the scheme is likely to be announced during the upcoming Budget on February 1, 2023. As an initial step, the Niti Aayog has set up a task force to examine the production and promotion of bio-fertilizers and organic fertilizers.

Currently, the agriculture sector is facing several production related issues due to ongoing practices, and a new fertilizer policy in the upcoming budget would be hugely appreciated. Since heavy subsidies have provoked several farmers to use chemical fertilizers like urea, it has led to higher productivity while affecting soil fertility in the long run. As per a UN report, excessive and inefficient use of fertilizers leads to nutrient losses to the environment and could also result in drinking water contamination and impact human lives as a result of unsafe storage practices.

The agriculture sector is expecting a number of benefits from the new fertilizer policy to be introduced in the Budget 2023-24, some of which are listed below:

1. The new policy is expected to consist of special incentives to set up fertilizer units and reduced import duty on raw materials with focus on organic fertilizers.
2. A reduction in import duties of phosphoric acid and ammonia to improve competitiveness of domestic fertilizer manufacturers has been a long pending demand of the industry.
3.  In accordance with the long term food security strategy, the industry expects an incentive for the promotion of the organic fertilizer industry, since India already has the potential to become a hub of organic fertilizer production.

India’s fertilizer sector dynamics

While India is among the top fertilizer users, it relies heavily on imports, triggering both import bills and subsidy burden. Its total consumption of fertilizers between April and mid December 2022 was 40.146 Lakh Metric Tonnes (LMT) with production of 32.076 lmt and imports of 12.839 lmt.

Source: pib.gov.in, Figures in *LMT

The high cost of natural gas, along with the disruption of imports from Russia and Ukraine, caused prices for chemical fertilizers to more than double in the last two years, further increasing the financial burden on the government.

Source: pib.gov.in, Figures in *LMT

For 2023-24, the fertilizer ministry might seek budgetary support of Rs 2.5 trillion subsidy. Outgo for FY23 has already crossed Rs 2 trillion.

Source: pib.gov.in, Figures in *LMT

Government initiatives for the sector

According to government reports, availability of fertilizers such as Urea, DAP, NPK etc has been smooth in India during 2022-23. Department of Fertilizers has undertaken various steps to ensure comfortable availability and smooth supply of all the fertilizers across the country, some of these are mentioned below:

• Assessment of state-wise requirement every month
• 100% neem coating of urea to increase nutrient efficiency
• Monitoring of crop yield and soil health
• Online monitoring of the movement of fertilizers through integrated Fertilizer Monitoring System (iFMS).
• Implementation of the “One Nation One Fertilizers” scheme which aims to ensure timely supply of fertilizers along with introduction of a single brand.
• Disbursement of subsidies for urea and nutrient-based subsidy and implemented direct benefit transfer.
• The existing village/block/sub-district/taluk and district level fertilizer retail outlets are being converted into model fertilizer retail outlets.

In order to tackle multiple issues faced by fertilizer sector, the government has launched various schemes and policies in the past year, some of these are:

• Urea Subsidy Scheme: Presently, Urea is being provided to the farmers at a statutorily notified Maximum Retail Price (MRP) of Rs 242 per 45 kg bag of urea. Under the scheme, the difference between the delivered cost of urea at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer or importer.
• Nutrient Based Subsidy Scheme: Subsidy rates of P&K fertilizers under this scheme were increased on 20^th May 2021 and 13^th October 2021, and then further increased substantially for Kharif-2022, so that these fertilizers are available at affordable prices to the farmers.
• Direct Benefit Transfer (DBT) project for fertilizer subsidy payment: Department of Fertilizers (DoF) has implemented the scheme for fertilizer subsidy payment to improve fertilizer service delivery to farmers. Under the DBT system, 100% subsidy on various fertilizer grades is released to the fertilizer companies on the basis of actual sales made by the retailers to the beneficiaries.
• Nano Urea: The Government of India recently notified the specifications of Nano nitrogen under Fertilizer Control Order 1985. Nano fertilizers hold great promise for application in plant nourishment because of the size-dependent qualities, high surface volume ratio and unique optical properties.

As India is the second largest consumer of fertilizer in the world after China, the fertilizer industry is essential to the growth of Indian Economy. It also produces most important raw ingredients required for agricultural production. With active and schemes projected to be announced in Budget 2023-24, the Indian fertilizer market is anticipated to increase at a compound yearly growth rate of 11.9% in the period 2121-2026.

With agriculture remaining one of the focus areas in Budget 2023-24, the agri-input sector which includes agrochemicals, fertilizers etc. are expected to benefit. According to ICRA, the fertilizer subsidy allocation is expected to remain upwards of Rs 2 trillion in FY 2024. Although the government may not allocate the full amount of the expected subsidy in the Budget, it may calibrate the allocation during the course of the year.