Context
Faced with a possible revival of farmer protests the government has announced a 137% increase in the subsidy on di-ammonium phosphate (DAP).
About di-ammonium phosphate (DAP) and its importance
- DAP is the second most commonly used fertiliser after Urea, in India.
- DAP contains 46% P and 18% nitrogen (N).
- Farmers normally apply this fertiliser just before or at the time of sowing, as it is high in phosphorus (P) that stimulates root establishment and development.
How the subsidy is decided for fertilisers?
- Fertilisers attract the nutrient-based subsidy or NBS, whose rates vary across nutrients.
- 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 K and Rs 2.374/kg for S.
- Therefore, depending on the nutrient content in different fertilisers, the per-tonne subsidy varies.
- The MRPs of non-urea fertilisers are decontrolled or fixed by the companies. The Centre pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
- Decontrolled fertilisers, thus, retail way above urea, while they also attract lower subsidy.
- Urea is the only fertilizer at present with pricing and distribution being controlled statutorily by the Government. Thus, no one can sell urea above the MRP declared by the Govt. Under the Concession Scheme, the MRP for each fertilizer is indicative in nature.
What is fertiliser subsidy?
- Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.
- For example, the MRP of neem-coated urea is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively.
- The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
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