[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?