Nutrient-Based Subsidy (NBS) for Urea Before Direct Cash Transfer

Government had launched the nutrient-based subsidy (NBS) in 2010 under which a fixed amount of subsidy is given on each grade of subsidized phosphatic and potassic (P&K) fertilizers. Now for urea too, the subsidy will be based on the nutrient content present in them. The total consumption of urea is around 30 MT, out of which 5 MT is imported.

As the cost of production varies with plants, Government will have to determine a fixed subsidy and then transfer it into farmers’ accounts based in the sale. A bag of 45 kg of urea costs around Rs. 900 and farmers get it at Rs. 242 at a discount of over 70 percent.

Government is expected to fix NBS rate for urea before rolling out the Direct Cash Transfer (DCT)  of urea subsidy   to farmers’ accounts. The subsidy will not be universal for farmers across the country and will be based on soil health and size of the landholding. Tenant farmers would also be eligible to get the subsidy on production of valid tenancy documents.

In the policy of urea subsidy to farmers, it has been agreed in principle to bring urea under NBS subsidy towards the first step to roll out DCT to farmers’ bank accounts. An inter-ministerial committee (IMC) will decide the rate of NBS subsidy as is being decided for other P&K fertilizers every year.

Fixing NBS price for urea will encourage balanced use of urea and bring in efficiency in the fertilizer industry by infusing competition. The DCT is aimed at replacing the existing direct benefit transfer (DBT) system where farmers buy urea at subsidized price, which is almost one-third of the total cost, and the urea manufacturers get the subsidy reimbursed after sale to farmers by the retailers. The sale linked with farmers’ Aadhaar Card, Voter Card or Kisan Credit Card (KCC) is captured through the PoS machines and the ministry transfers subsidy after verifying the genuinity of the purchase.

Centre spends around Rs.55,000 crore on urea subsidy. By capping the urea consumption as per land size by saving 10-15 percent  of the subsidy amount.

Subsidy amount would depend on the size of landholding & soil health and will vary from state to state. It has to consider first the soil profile of the state and farmers of that particular state will get subsidy per hectare.

The subsidy will differ for farmers for different states depending upon the urea requirement of the soil. For example, Punjab farmers will get more subsidy than West Bengal’s as land in Punjab requires more urea than West Bengal.

For implementing Direct Cash Transfer, the fertilizer ministry will have to create a fresh database of farmers.