National Urea Policy, 2015

About Policy
1. This policy was approved by Cabinet Committee on Economic Affairs (CCEA) in 2015 with the main focus to help in facilitating new investments in the sector, particularly by way of new plants being set up and the augmentation of existing capacity.
2. The NUP(National Urea Policy) is effective from June 1, 2015 to March 31, 2019.
3. Under this policy, Urea producers are allowed to produce neem coated urea upto 100 percent of production and making it mandatory to produce a minimum of 75 percent of domestic urea as neem coated, so that farmers are benefitted.
4. The MRP of urea for the farmers has been kept the same at Rs. 268/- per bag of 50 kgs. excluding local taxes. Farmers have to pay an additional price of only Rs.14/- per bag of neem coated urea.
5. The movement plan for urea would continue to be given by the Government every month to urea suppliers, to ensure its timely and adequate availability, in all parts of the country.
6. Movement plan for P&K fertilizers has also been freed to reduce monopoly of few companies in a particular area so that any company can sell any P&K fertilizer in any part of the country.
7. Rail freight subsidy has been decided to be given on a lump sum basis so that the companies economies on transport. This will help farmers and reduce pressure on the railway network. The Government continues to have legal tools to direct fertilizer suppliers to supply fertilizers in any part of the country where there would be any shortage.
8. Subsidy would be payable to suppliers only after fertilizers are received in the districts and final settlement of subsidy claims will continue to be done only after acknowledgement of receipt of fertilizers by retailers. Quality certificates are to be given by the respective State Governments within six months from the receipt of fertilizers. If quality is sub-standard, subsidy will not be given to fertilizer suppliers.
Objective
1. Maximize indigenous Urea Production to reduce import dependency and reduce subsidy burden on the government
2. Promote energy efficiency to reduce Carbon-footprint to make Urea production environment friendly.
3. Make Urea production plant to adopt best technology available and become globally competitive.
4. Timely supply of Urea to farmers at the same MRP.

Positive Aspects:
1. National Urea Policy has mainly two objectives of maximizing indigenous urea production and promoting energy efficiency in urea units to reduce the subsidy burden on the Government. Savings in energy shall reduce the carbon-footprint and would thus be more environment friendly.
2. This policy ensures timely supply of urea to farmers at same Maximum Retail Price (MRP) with lesser financial burden on the exchequer. It will reduce import dependency in the urea sector.
3. Neem coated urea is not fit for industrial use, so chances of its illegal diversion to industries will also be lesser.
4. When farmers use conventional urea, about half the applied nitrogen is not assimilated by the plant and leaches into the soil, causing extensive groundwater contamination. Spraying urea with neem oil slows the release of nitrogen, by about 10 to 15 per cent, concomitantly reducing consumption of the fertiliser. According to recent research, the "sustained release" nature of neem-coated urea has seen rice yields jump 9.6 per cent and wheat by 6.9 per cent.
5. By all these measures, import dependency of India for urea is likely to reduce drastically. Presently, India is importing about 80 lakh metric tonnes of urea out of total demand of 310 lakh metric tonnes.
Limitations
1. The neem-coating also precludes an age-old malpractice of this cheap fertilizer being diverted for use in the chemical industry and, most harmfully in states like Punjab and Haryana, as an additive in milk to whiten it.
2. Infrastructure is another area where the policy has not made significant impact; poor infrastructure is impacting capacity
3. Urea price controls have wrong incentivized use of nitrogenous fertilizers and affected soil health in an adverse way.
4. It boosts energy efficiency through economization of rail freight and boosts domestic production only in marginal terms.
Issues:
1. There is government's inability to reimburse manufacturers on time means they have to borrow. This situation has discouraged investment in new urea plants, so that the government is forced to import to make up the shortfall, which is about a quarter of its total urea requirement - even in a drought year like the 2015-16 kharif season, the government imported about 7.5 million tonnes between April and January.
2. Average landed price of imported urea is $300 a tonne, which, at the exchange rate of $1 = Rs 69.14, is sold to farmers at $77.52 a tonne. This large differential in retail prices has encouraged illegal and unaccounted for cross-border sales to Nepal and Bangladesh.
3. The wide price differential between urea and P and K fertiliser- the complex fertiliser Di-ammonium Phosphate, for instance, retails at about Rs 24,000 a tonne - has discouraged the use of the latter, resulting in a serious nutrient imbalance in the soil. An FAI seminar paper showed that the N:P:K ratio was 10:4:1 in 2011-2012 against an ideal 4:2:1. Since then it has grown worse. Although this applies only to six states but these are the principal agricultural states.
Conclusion:
National Urea Policy is expected to bring benefits of subsidy rationalization and maximization of domestic production, thus reducing reliance on imports. Further, the policy is also expected to reduce complexity in implementation of previous policies. With tightening of energy consumption norms for urea units, the profit on energy savings would be driven by their ability to reduce energy consumption level. Many units would still earn reasonable profit on energy saving even with tightening of norms. But, problem, then, comes back to the administered pricing policy and the government's increasing inability to afford the subsidy. Political compulsions, especially compelling after two years of drought, make this an inopportune time to raise prices. Allowing the industry to charge market prices and paying farmers a direct subsidy is one possible solution to this problem.

By: Vishal