Economic Liberalisation and Fertilizer Policies in India

The economic reforms which were started in 1991 shifted the focus of fertilizer policies away from playing a leading role in building the fertilizer industry and ensuring the availability of fertilizers at affordable prices to farmers. Under the neo-liberal policy framework, reducing the fiscal burden of fertilizer subsidies and the foreign exchange burden of fertilizer-related imports became the overriding concerns of the state. Interestingly, the post-liberalisation policies have not only spectacularly failed in both these objectives, they have also resulted in a surge in the prices of fertilizers other than urea, and vastly accentuated the urea bias in nutrient application in Indian agriculture. The analysis in this paper shows that the decontrolling of the prices of fertilizers other than urea through the Nutrient Based Subsidy scheme has resulted in a situation in which, while the state continues to incur a huge amount of expenditure on subsidies for these fertilizers, fertilizer companies are not required to pass on the benefits to farmers.

Fertilizer policies in the post-liberalisation period have resulted in the high and wasteful use of fertilizers in Indian agriculture. The productivity of fertilizer use is remarkably low in India because of imbalance of nutrient application, lack of investment to improve farm-level nutrient management, and the collapse of agricultural extension.

The shift to DBT for the disbursement of fertilizer subsidies is likely to have far-reaching effects on the Indian agriculture. With the pan-India roll-out of the DBT scheme in 2018, the government has put in place a framework for targeted fertilizer subsidies. Although mechanisms for the targeting of subsidies have not yet been enforced, the current policy has provisions for denying the benefit of fertilizer subsidies to farmers who do not have land registered in their own names or have not registered under Aadhaar. The government is already preparing a road-map for eliminating fertilizer subsidies and shifting to targeted cash transfers in lieu of fertilizer subsidies through PM-KISAN, a new scheme for cash transfers to farmers that was introduced in March 2019. If implemented, the shift from fertilizer subsidies to targeted direct benefit transfers would adversely affect the remunerativeness of agriculture and deepen the agrarian crisis.

Read a detailed review of fertilizer policies in India, and their implications on the pattern of fertilizer use, in the new SSER Monograph here.

[A version of this paper would be forthcoming in Social Scientist.]