Tuesday, March 1, 2016

[Editorial # 75] Urea: Prime target for subsidy reform : The Economic Times

[Following editorial has been published in The Economic Times on 1st March 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer-writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

The Economic Survey rightly pitches for overhaul of the subsidy regime for urea. There are multiple distortions in urea, which lead to inefficiencies and plain misallocation of resources. It is estimated that 41% of the subsidised urea is diverted for non-agricultural use or across the border, about 24% of the subsidy goes to prop up inefficient producers, and only about a third reaches small and marginal farmers, the intended beneficiaries. We can surely do much better. Of the total fertiliser subsidy of about Rs 73,000 crore — including for phosphoric (P) and potassic (K) nutrients — almost 70%, or Rs 50,300 crore, is allocated to urea. But there is an extensive black market for it, along with its overuse, degrading soil.
The black marketing imposes significant costs on farmers and adds to uncertainty in supply. We clearly need better targeting of the urea subsidy and its rationalisation. There are perverse price and movement controls, manufacturer subsidies and import restriction on urea. The 75% subsidy per kilogram of urea — against about 35% subsidy for P and K fertilisers — actually encourages overuse.
The canalisation of urea imports only adds to the distortions. We need prompt decanalisation of urea to ease supply restrictions. The survey moots joint-venture urea plants in areas of cheap feedstock like Iran, at the very end of its recommendations.
But we clearly need to be much more proactive and fast-track and concretise the investment plans without further delay as these are long-gestation projects. Its suggestion for limiting urea sales via biometric authentication makes sense. The idea to cap the number of bags of subsidised urea, so that larger farmers buy more from the market, is worth a try. Rationalising the urea subsidy would provide much-needed central funds for agricultural investment.


1. What is Urea? Why and where is it  used? How much is the per hectare consumption of Urea in India?

2. How is Urea produced? What are the raw materials required for Urea manufacturing?

3. What is the total production of Urea per year in India? Does India import/export urea? If yes, then what is the value/volume of such imports/exports annually?

4. What are some traditional sources of Urea which are used by farmers as fertilizers?

5. How much subsidy on urea is provided by the government? What are the current issues with subsidies on urea provided by the government?

6. What are various nutrients required for getting a better crop yield?

7. What steps should the government take to rationalize subsidies on Urea?


  1. 6.

    Supplied from air and water
    Supplied from soil and fertilizer sources
    Carbon (C) Nitrogen (N) Zinc (Z)
    Hydrogen (H) Phosphorous (P) Copper (Cu)
    Oxygen (O) Potassium (K) Iron (Fe)
    Sulphur (S) Maganese (M)
    Calcium (Ca) Boron (B)
    Magnesium (Mg) Chlorine (Cl)
    Molybdenum (Mo)
    Cobalt (Co)

  2. Urea is a an organic compound. One of the most important role of Urea is in the metabolism of nitrogen containing compounds by animals. Further is the main nitrogen containing substance in the urine of the Mammals.
    Properties- colorless, odorless solid which is highly soluble in water and is non-toxic.
    Agriculture- Used as a nitrogen release fertilizer. Has the highest nitrogen content of all solid nitrogenous fertilizers. The standard crop-nutrient rating NPK of urea is 46-0-0.
    Used to make urea nitrate a high explosive which is used in Industry.
    Chemical Industry
    used as a raw material.
    Automobile systems
    Used in automobiles to reduce NOx pollutants in exhaust gases from combustion from diesel and gas engines.
    Medical use
    Dermatological products for re hydration of the skin.

  3. Urea is produced by several steps which begin with direct reaction of ammonia with Carbon dioxide in a higher pressure, high temperature reactor. Used on an industrial scale for the manufacture of fertilizers, Pharmaceuticals and resins.

  4. Production of Urea in Volume ('000MT)- 22593.
    Production of Urea in Value (Crore)- 43830.

    Consumption of Urea in volume- 30610.
    Consumption in value-59383.
    Since consumption is more than production India imports Urea.
    Import in volume- 8749.
    Import in Value-16973.

  5. The Government provides 73,crore which is about 0.5 per cent of GDP on fertiliser subsidies in 2015-16. 70% of this amount
    (53,290) was allocated to urea, most commonly used fertiliser.
    since there are large subsidies on end use i.e., only agricultural urea is subsidised. This leads to diversion of Urea to other industry and abroad.
    Three types of leakages
    1.24% spent on inefficient urea producers.
    2.of the remaining, 41% diverted to non-agricultural uses and abroad.
    3.of the remaining, 24% consumed by rich farmers.
    Therefore only 35% reaches the actual or the intended beneficiaries.
    Further since Urea is priced low when compared to other fertilisers this leads to over consumption, which results in depleting the quality of the soil.

  6. 1.Deregulation of Urea imports. This would lead to increase in number of importers. This would help in responding quickly and flexibly to changes in demand. Domestic producers can charge market price.
    2. Bringing Urea under nutrient based subsidy program. (Fixed subsidies based on the nutritional content of their fertiliser).
    3. Direct transfers in fertilisers to reduce leakages.(Pursuing neem coating urea)
    4.Cap on number of subsidised bags each households can purchase and require bio-metric authentication at the point of sale.(This is done in Andhra Pradesh for kerosene)