Nutrient Based Subsidy (NBS)

Economic Affairs Agricultural Policy and Growth

The Cabinet Committee on Economic Affairs (CCEA) has approved the Fixation of Nutrient Based Subsidy (NBS) rates for Phosphatic and Potassic (P&K) fertilizers for the year 2017-18.
As compared to 2016-17, the subsidy for the period 2017-18 has decreased from Rs. 13.241/kg to 11.997/kg (decrease of Rs. 1.244/kg) for P, from Rs. 15.470/kg to 12.395/kg (decrease of Rs. 3,075/kg) for K whereas the subsidy of N has increased from Rs. 15.854/kg to 18.989/kg (an increase of Rs. 3.135/kg) and of S from Rs. 2.044/kg to 2.240/kg (an increase of Rs. 0.196/kg).

About NBS Policy:

Till 2003, the subsidy to urea was under the provisions of the Retention Price Scheme (RPS).
Under RPS, the difference between retention price (cost of production as assessed by the Government plus 12% post tax return on net worth) and the statutorily notified sale price was paid as subsidy to each urea unit.
Later the RPS regime was dismantled and a Concession Scheme for urea units based on the prices of feedstock used and the vintage of plants was introduced, which was called New Pricing Scheme or NPS. This scheme was introduced from April 1, 2003.
It had various phases like NPS-I (2003-2004), NPS-II (2004-2006) and NPS-III (2006 onwards).

Main features of the scheme:

This scheme is for 22 grades of decontrolled fertilizers namely DAP, MAP, TSP, DAP Lite, MOP, SSP, Ammonium Sulphate and 15 grades of complex fertilizers.
These fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
Additional subsidy is also provided on the fertilizers fortified with secondary and micronutrients as per the Fertilizer Control Order such as Boron and Zinc.
The subsidy given to the companies is fixed annually on the basis of its nutrients content (i.e. Nitrogen, Phosphate, Potash and Sulphur).
Under this scheme, Maximum Retail Price (MRP) of fertilizers has been left open and manufacturers/marketers are allowed to fix the MRP at reasonable level.

Analysis:

Marginal response of agricultural productivity to additional fertilizer usage in the country had fallen sharply, leading to near stagnation in agricultural productivity and consequently agricultural production.
The fertilizer sector worked in a highly regulated environment with cost of production and selling prices being determined by the Government, due to which fertilizer industry suffered from low profitability as a result this sector could not attract investments.
The innovation in fertilizer sector also suffered, as very few products were introduced by fertilizer companies, since they get out priced by subsidized fertilizers.
The industry had no incentive to focus on farmers leading to poor farm extension services, which were necessary to educate farmers about the modern fertilizer application techniques, soil health and promote soil test based application of soil and crop specific fertilizers.
Also,Subsidy implication was very high.
To overcome above deficiencies, a Nutrient Based Subsidy Scheme has been implemented with the expectation that it will promote balanced fertilization of soil, which will lead to increased agricultural productivity and consequently better returns to the farmers. The decontrolled scenario is also expected to promote competition leading to efficiencies in production and import. In the long run, the policy is expected to stabilise demand and supply situation and also contain the subsidy outgo.

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