Fertiliser Subsidy Regime in India

The fertiliser subsidy regime is the set of government policies through which farmers are enabled to buy fertilisers at prices below their economic or import cost. In India, the regime treats urea differently from phosphatic and potassic fertilisers: urea remains under direct price control, while most P&K fertilisers are subsidised through a Nutrient Based Subsidy mechanism. The subsidy is primarily paid to fertiliser companies and importers, not as a cash transfer directly into farmers’ bank accounts.

Constitutional / legal basis

There is no specific constitutional article creating a fertiliser subsidy. Its legal and administrative basis lies in the Essential Commodities Act, 1955 and the Fertiliser (Control) Order, 1985 for regulation of fertilisers, along with annual Union Budget appropriations and Department of Fertilizers schemes for subsidy payments.

Key points

• Urea is the main fertiliser that remains under government-controlled Maximum Retail Price; farmers buy urea at the notified price and the gap between this price and the assessed cost or import cost is borne by the Union Government as subsidy.
• The urea subsidy is product-specific and price-control based, which keeps urea relatively cheaper for farmers than it would be under market pricing.
• The Nutrient Based Subsidy for phosphatic and potassic fertilisers was implemented from 1 April 2010 and applies to notified P&K fertilisers rather than to urea.
• Under NBS, the government announces a fixed subsidy per kilogram of nutrients, nitrogen, phosphorus, potassium and sulphur, and the subsidy on each fertiliser grade depends on its nutrient content.
• For P&K fertilisers under NBS, companies are allowed to fix retail prices, but the government expects these prices to remain reasonable and monitors them through the subsidy framework.
• Fertiliser subsidy is routed mainly to manufacturers and importers; under the fertiliser DBT system, subsidy is released to companies on the basis of actual retail sales recorded through point-of-sale devices.
• A major policy concern is that heavy urea price control relative to P&K fertilisers can encourage imbalanced nutrient use, besides creating a large fiscal burden for the Union Budget.

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