Increased subsidy on DAP
21/05/2021

Tags:

Context:

  • The government announced a 140% increase in the subsidy on di-ammonium phosphate (DAP),from Rs 511 to Rs 1,200 per 50-kg bag.
  • It is estimated that it will cost the exchequer an additional Rs 14,775 crore in the coming kharif season alone.

DAP and its importance:

  • DAP is the second most usedfertiliser in India after urea. Farmers normally apply this fertiliser just before or at the beginning of sowing, as it is high in phosphorus that stimulates root development.
  • Without well-developed roots, plants will not grow to their normal size, or will take too long to mature.
  • While there are other phosphatic fertilisers as well — for instance, single super phosphate that contains 16% P and 11% sulphur (S) — DAP is the preferred source of P for farmers. This is like urea, which is their preferred nitrogenous fertiliser containing 46% N.

Subsidy scheme in DAP, and how is it different from other fertilisers?

  • The maximum retail price (MRP) of urea is currently fixed at Rs 5,378 per tonne or Rs 242 for a 45-kg bag.
  • Since companies are required to sell at this rate, the subsidy (the difference between the cost of manufacturing or import and the fixed MRP) is variable.
  • The MRPs of all other fertilisers, by contrast, are decontrolled. Technically, companies can sell these at the rates that they — and not the government — decide.
  • The government only gives a fixed per-tonne subsidy. In other words, the subsidy is fixed, but MRP is variable.

Non-urea fertilisers attract the same subsidy:

  • They are governed by what is called nutrient-based subsidy or NBS. For 2020-21, the Centre fixed the NBS rates at Rs 18.789/kg for N, Rs 14.888/kg for P, Rs 10.116/kg for potassium (K) and Rs 2.374/kg for S.
  • Therefore, depending on the nutrient content for different fertilisers, the per-tonne subsidy also varies.
  • The subsidy on DAP for 2020-21 was Rs 10,231 per tonne, or Rs 511.50 for a 50-kg bag. Most companies, till recently, were selling DAP to farmers at around Rs 24,000 per tonne or Rs 1,200/bag.
  • They could do this when international prices — both final product as well as the imported raw materials/ingredients such as rock phosphate, sulphur, phosphoric acid, and ammonia — were at reasonable levels.
  • Landed prices of DAP in India were below $400 per tonne or Rs 29,000 till October. Adding 5% customs duty and another Rs 3,000 towards port handling, bagging, warehousing, interest, trade margins, and other costs took it to around Rs 33,500 per tonne. Netting out the subsidy of Rs 10,231 per tonne, companies could manage to sell at the MRP of Rs 24,000/tonne or Rs 1,200/bag.
  • But global prices of fertilisers and inputs have surged over the past 6-7 months, tracking a general bull run in commodities. That has made it unviable for companies to continue selling at the old rates.

So, what did they do?

  • All of them raised MRPs. That included the country’s biggest seller. These hikes were effective from April 1.
  • Since non-urea fertilisers are technically decontrolled, there was nothing stopping them from undertaking such steep price hikes. But with West Bengal Assembly elections still on, the companies were told to keep these on hold.

What has the government now done?

  • The Department of Fertilisers had notified the NBS rates for 2021-22 on April 9. These were kept unchanged from last year’s levels, leaving companies little choice but to go ahead with the MRP hikes.
  • Recently, a “historic decision” was taken to increase the subsidy on DAP from the existing Rs 10,231 per tonne (Rs 511.55/bag) to Rs 24,231 per tonne (1,211.55/bag).
  • The Department of Fertilisers too has notified a higher NBS rate for P (from Rs 14.888 to Rs 45.323/kg), while keeping those for the other three nutrients (N, K and S) unchanged. This will enable companies to sell DAP at the earlier MRP, though not MOP and other complex fertilisers.
  • But the timing of keeping at least DAP prices in check is good, as farmers will start sowing operations from next month with the arrival of the southwest monsoon rains.
  •  Politically, too, a revival of farmer protests, more so during the time of the Covid’s second wave, is the last thing the government would want.
Quiz of the Day for IAS Prepation
Test Your UPSC Preparation With Vajirao's Daily Current Affairs Quiz

Select the correct answer and click on the “Finish” button Check your score and explanations at the end of the quiz

Start Quiz