The fertilizer subsidy in Fiscal Year 2023-24 (FY24) has exceeded Revised Estimates (RE) by over ₹6,500 crore, latest government data show. However, this is unlikely to impact revised estimate of fiscal deficit.

One possible reason for increase in subsidy is rise in input cost and operations cost mainly on account of increase in natural gas prices.Data, as analysed by businessine, showed subsidy on urea going up to over ₹1.30-lakh crore as against RE of ₹1.29-lakh crore. However, it is still lower than the Budget Estimate of over ₹1.35-lakh crore. Under nutrient-based subsidy (NBS), expenditure rose to over ₹65,000 crore as against RE of over ₹60,000 crore and Budget Estimate of ₹44,000 crore.

Last June, the government extended urea subsidy scheme up to March 31, 2025. Between FY23 and FY25, the total estimated outlay was pegged at over ₹3.68-lakh crore. The actual expenditure is expected to vary based on the prices of natural gas and other inputs used in the production of urea.

Under the subsidy scheme, urea is provided to farmers at a statutorily notified maximum retail price (MRP). The MRP of 45 kg bag of urea is ₹242 per bag (exclusive of charges towards neem coating and taxes as applicable), while the cost, on some occasions, crossed ₹3,000 for a 45 kg bag.

The difference between the delivered cost of urea at farm gate and net market realisation by the urea units is given as subsidy to the urea manufacturer/importer by the government. Further, government implemented nutrient-based subsidy policy w.e.f. April 1, 2010 all over the country, which has now been extended toll 2025-26. Under the NBS policy, a fixed rate of subsidy (in ₹ per kg basis) is announced on nutrients namely nitrogen (N), phosphate (P), potash (K) and sulphur (S) by the government on annual/bi-annual basis. The per kg subsidy rates on the nutrient N, P, K, S is converted into per tonne subsidy on the various P&K fertilizers covered under NBS policy.

Any variant of the fertilizers covered under the subsidy scheme with micronutrients namely boron and zinc, is eligible for a separate per tonne subsidy to encourage their application along with primary nutrients. At present 25 grades of P&K fertilizers namely DAP, MAP, TSP, MOP, ammonium sulphate, SSP, PDM and 18 grades of NPKS complex fertilizers are covered under the NBS Policy. Under the NBS regime, MRP of P&K fertilizers has been left open and fertilizer manufacturers/marketers are allowed to fix the MRP at reasonable rates.

On a number of occasions, the government has admitted about problem of over-application of urea in the country and that the consumption of nitrogen in India is much higher than many other countries in the world. Evidently, Indian farmers do not adhere to the established ideal fertilizer ratio of 4:2:1 of N:P:K, with negative consequences for soil health.

One of the reasons for over-consumption of urea is being promoted due to NBS which covers other fertilizers like P & K fertilizers only. Because of this urea is cheaper than other.