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The Big Picture: Fertilizer Subsidy Reforms: Scope, Problems & Challenges


The Big Picture: Fertilizer Subsidy Reforms: Scope, Problems & Challenges

With the landslide win in the recent Uttar Pradesh Assembly elections, the Narendra Modi Government has decided to fast track the implementation of the Direct Benefit Transfer system for payment of fertilizer subsidy to farmers. From the coming kharif season beginning from June, the 70,000 crore rupees fertilizer subsidy budgeted for 2017-18 will be disbursed to companies based on actual sales to farmers captured on point of sale machines installed at nearly 2 lakh retail points across India. This could be a significant change from the current system where firms are paid subsidy on receipt of their fertilizer at the railhead point or any approved godown of a district. Prior to this, till October 2012, they were getting the subsidy on the despatch of material from their respective factories. 


  1. At this point of time, it has not been calculated that how much each farmer will actually require due to which the subsidy cannot be directly apportioned to the farmers. What the Government is trying to do with this step is to control the leakage of the subsidy which happens because the sale does not happen always to the farmer. It is done to plywood manufacturers, washing powder or other manufacturing units using urea as by-product. This step is to prevent that.
  2. During the time of demonetization, the fertilizer companies were specifically asked to create PoS because they were saying that fertilizers had to be distributed which was a challenge at that point of time. The aim is to make the transactions digital between the farmer and the fertilizer company.
  3. This will also allow them to possibly see where the consumption is happening. There was a leakage which was also happening to neighbouring countries like Bangladesh and Nepal. The sale happens in India but the product is transferred to these countries. If some farmers are buying these fertilizers in excess, that can also be checked. Largest consumers of fertilizers in India are Punjab and Uttar Pradesh.

Problems and Challenges:

  1. However, the way Government is promoting farming, it is totally different from ecological farming. It has become a game of only three chemicals- NPK (nitrogen, phosphorus and potassium). Plants require at least 17 elements for their growth. Government is saying that it is promoting organic farming but in this case, subsidy is being given to chemical fertilizers and there are huge discrepancies in the usage of fertilizer. The ratio of NPK usage should be 4:2:1. In Punjab, this ratio is 61:19:1. Urea is cheap to purchase so farmers use it more that creates imbalance due to which the yield either goes down or is stagnant. The whole system of subsidy should also look into overall benefits to agriculture.
  2. Over usage of fertilizer is a bigger challenge than subsidy. In 1950, with the use of less NPK, the yield was more. Now, with the use of more NPK, lesser yield is being produced. There is a need to improve the organic content of the soil through organic farming or compost.
  3. Government is selling compost at a particular price and same is the rate for urea so this would not push the farmers towards organic farming. It is very important that farmers should produce fertilizers in their fields. A cropping pattern should be there which is being done now but on a small scale.
  4. Instead of giving subsidies on chemicals, it is very important to incentivise those farmers who are practicing organic farming and encourage them. Ultimately, these subsidies will only help fertilizer companies to sustain their business but in the long run farmer’s business will be hampered because his input costs will continuously increase with inversely proportional output rates. The end product is also not safe for consumption. Subsidy should be linked to productivity which will remove fertilizer companies from the game. Corporates will not allow this as their motive is to earn profit. Farming is a profitable business for these companies and not the farmers.

Possible Steps to be taken:

  1. The momentum for these changes has to be created through robust policies.
  2. State Governments and Central Government need to work in tandem to encourage farmers for ecological farming.
  3. Particularly in western UP and Punjab, the farmers need to move away from wheat and rice because the ground water has depleted.
  4. Farmers have to be educated and taught to change their cropping pattern and move to multiple cropping.


It is crucial for India to reform its ailing agriculture and such reforms will be possible only if there is a political will and a way to explain how changes will actually benefit farmers and not harm them.