Government of India decontrolled Phosphatic and Potassic (P&K) fertilizers with effect from 25th August 1992 on the recommendations of Joint Parliamentary Committee. Consequent upon the decontrol, the prices of the Phosphatic & Potassic fertilizers registered a sharp increase in the market, which exercised an adverse impact on the demand and consumption of the same. It led to an imbalance in the usage of the nutrients of N, P & K (Nitrogen, Phosphate and Potash) and the productivity of the soil. Keeping in view the adverse impact of the decontrol of the P&K fertilizers, Department of Agriculture & Cooperation introduced Concession Scheme for decontrolled Phosphatic & Potassic (P&K) fertilizers on ad-hoc basis w.e.f. 1.10.1992, which has been allowed to continue by the Government of India upto 31.3.2010 with changed parameters from time to time. Then the Government introduced Nutrient Based Subsidy Policy w.e.f. 1.4.2010 (w.e.f. 1.5.2010 for SSP) in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers.
The basic purpose of the Concession Scheme and Nutrient Based Subsidy Policy has been to provide fertilizers to the farmers at the subsidized prices. Initially, the ad-hoc Concession Scheme was introduced for subsidy on DAP, MOP, NPK Complex fertilizers. This scheme was also extended to SSP from 1993-94. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture & Cooperation. Subsequently, DAC started releasing payment of concession to the fertilizer companies based on the certificate of sales issued by the State Governments on 100% basis.
The Government introduced the system of releasing 80% 'On Account' payment of concession in 1997-98 to the fertilizer companies month-wise, which was finally settled based on the certificate of sales issued by the State Government. During 1997-98, Department of Agriculture & Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The responsibility of indicating MRP in respect of SSP rested with the State Governments. The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States, which continued upto 31.3.2008. Based on the cost price study of DAP and MOP conducted by Bureau of Industrial Costs & Prices (BICP - now called Tariff Commission), Department of Agriculture & Cooperation started announcing rates of concession based on the cost plus approach on quarterly basis w.e.f. 1.4.1999. The total delivered cost of fertilizers being invariably higher than the MRP indicated by the Government, the difference in the delivered price of fertilizers at the farm gate and the MRP was compensated by the Government as subsidy to the manufacturers/importers for selling the fertilizers at the MRP indicated by the Government.
The administration of the scheme was transferred from Department of Agriculture & Cooperation to Department of Fertilizers w.e.f. 1.10.2000. The Government introduced a new methodology for working out subsidy to complex fertilizers w.e.f. 1.4.2002 based on the recommendations of the Tariff Commission. The complex manufacturers were divided into groups based on feedstock for sourcing Nitrogen, such as gas, naphtha, imported ammonia. With the passage of time, the structure of DAP industry also changed as some of the new DAP manufacturing plants were established using the Rock Phosphate for manufacturing indigenous Phosphoric acid/DAP. Accordingly, the Tariff Commission made a fresh Cost Price Study and submitted its report in February 2003. Payment of concession to the DAP manufacturing units from 2003-04 to 2007-08 was made as per two groups depending upon the source of the raw materials (Rock Phosphate/ Phosphoric acid). Based on the decisions of the Government in 2004-05, Department of Fertilizers framed a proposal suggesting methodology to link phosphoric acid price with international DAP price. Subsequently, the matter was referred to the Expert Group. The Expert Group under Prof. Abhijit Sen, submitted its report in October 2005.
The recommendations of the Expert Group were considered by an Inter-Ministerial Group (IMG). Tariff Commission conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based on the examination of the Tariff Commission Report and the longterm approach suggested by the Expert Group under the Chairmanship of Prof. Abhijit Sen, the Government approved the Concession Scheme with effect from 1.4.2008 for DAP/MOP/NPK Complexes/ MAP, which continued upto 31.3.2010 with certain modifications. The final rates of concession were worked out on monthly basis. Concession for indigenous DAP was the same as that of imported DAP (on the basis of import parity price). Concession on complex fertilizers was based on the methodology recommended by Tariff Commission with certain modifications.
The NPK complex industry was divided into 4 groups, depending upon the source of Nitrogen, vis-à-vis, gas, naphtha, imported Urea-ammonia mixture and imported Ammonia. A separate cost of 'S' for Sulphur containing complex fertilizers was recognized w.e.f. 1.4.2008. The input/fertilizer prices for Concession Scheme was derived on the basis of an outlier methodology. The Buffer Stocking Scheme was allowed to continue with 3.5 Lakh MTs for DAP and 1 Lakh MTs for MOP as buffer. Modifications in certain elements of the Concession Scheme were also carried out with effect from 1.4.2009 to adjust parameters of concession scheme to International pricing dynamics and rationalize 'N' pricing group-wise as well as payment system. Certain changes were effected in the existing policy for P &K Fertilizers. Accordingly, w.e.f. 1.4.2009 final rates of concession were worked out on monthly basis, taking into account the average international price of the month preceding the last month or the actual weighted average C&F landed price at the Indian ports for the current month, whichever lower with respect to DAP and MOP. In case of raw materials/ inputs for complex fertilizers, there was a lag of one month. From 1.12.2008, payment of concession has been made to the manufacturers/importers of the Decontrolled fertilizers (except SSP) on the basis of arrival/ receipt of fertilizers and certificate of receipt by the State Government/statutory auditor of the company subject to final settlement on the basis of sale of the quantity.
The MRPs of the P&K fertilizers, which has been indicated by the Government/State Government, has been constant since 2002 till 31.3.2010. The MRPs of the NPK complexes were reduced w.e.f. 18.6.2008. In order to enhance the basket of fertilizers in the Concession Scheme, Mono- Ammonium Phosphate (MAP) was included into the Concession Scheme w.e.f. 1.4.2007, Triple Super Phosphate (TSP) was inducted into the Concession Scheme w.e.f. 1.4.2008 and Ammonium Sulphate (AS) manufactured by M/s FACT and M/s GSFC was inducted w.e.f. 1.7.2008. The rates of concession during 2009-10 under the Concession Scheme for decontrolled P & K fertilizers (except SSP) were as per Annexure-X.
In the implementation of Concession Scheme, it has been experienced that no investment has taken place in last decade. The subsidy outgo increased exponentially by 530% during 2004 to 2009 with about 90% of the increase due to rise in the international prices of fertilizers and inputs. Agricultural productivity did not register increase in commensurate with the increase in the subsidy bill. The MRP of the fertilizers remained constant from 2002 onwards. A Group of Ministers (GoM) constituted to look into all aspects of the fertilizer regime, recommended that Nutrient Based Subsidy (NBS) may be introduced based on the contents of the nutrients in the subsidized fertilizers. The Hon'ble Finance Minister in its Budget Speech 2009 announced for introduction of Nutrient Based Subsidy Policy for Phosphatic & Potassic fertilizers with the objective of ensuring Nation's food security, improving agricultural productivity and ensuring the balanced application of fertilizers. The Government introduced the Nutrient Based Subsidy (NBS) Policy w.e.f. 1.4.2010 in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers (w.e.f. 1.5.2010 for SSP). The details of Nutrient Based Subsidy Policy are as under:
Based on the recommendations of the Inter Ministerial Committee constituted under the Nutrient Based Subsidy Policy, the Government has allowed the per Kg NBS for 'N', 'P', 'K' & 'S' (Nitrogen, Phosphate, Potash and Sulphur) and the amount of subsidy per MT on the Phosphatic & Potassic fertilizers for 2010-11 and 2011-12 is as follows:
|Sl. No.||Nutrients||NBS per Kg of nutrient (2010-11)||NBS per Kg of nutrient (2011-12)|
|From 1.1.2011 to 31.3.2011||From 1.4.2010 to 31.12.2010|
|Fertilizers||Nutrient Based Subsidy per MT (2010-11)||Nutrient Based Subsidy per MT (2011-12)|
|From 1.1.2011 to 31.3.2011||From 1.4.2010 to 31.12.2010|
|16-16-16-0||11838 (w.e.f. 1.7.2010 inducted into NBS on 6.8.2010)||11654|
|Name of the Company||Grades of Fertilizers||Amount of additional compensation (provisional) in ' per MT|
|FACT (Cochin)||20-20-0-13 (APS) (Udyogmandal and Cochin)||2331|
|Ammonium Sulphate (20.6-0-0-13) (Udyogmandal)||2792|
|MFL, Manali||20-20-0-13 (APS)||4784|
|GNVFC, Bharuch||20-20-0-0 (ANP)||1914|
Per MT additional subsidy for fortified fertilizers with secondary and micro-nutrients as per FCO has also been allowed under NBS as follows:
|Sl. No||Nutrients for fortification as per FCO||Additional subsidy per MT of fortified fertilizers (')|
Department of Fertilizers releases 85% (90% with Bank Guarantee) 'On Account' payment of subsidy month-wise to the manufacturers/ importers of P&K fertilizers (SSP) based on receipt of fertilizers in the districts/States. The manufacturers/importers claim the 'On Account' payment in prescribed Proforma 'A' duly certified by the authorized signatory as well as the statutory auditor of the company. The balance payment of subsidy is also claimed by the fertilizer companies based on information in prescribed Proforma 'D' duly certified by the authorized signatory as well as the statutory auditor of the company. The State Governments are required to submit certificate to DOF in receipt of the fertilizers in prescribed Proforma 'B'. The payment of subsidy to SSP is released on sales basis. Accordingly, the eligible units are allowed to claim 85% 'On Account' payment of subsidy based on the information in respect of sale of SSP duly certified by the authorized signatory as well as the statutory auditor of the company. The balance payment is released by DOF based on the certification of sales issued by the State Governments in prescribed Proforma 'B'. At present, 38 manufacturers/importers of P&K fertilizers and 82 SSP manufacturers are covered under the Nutrient Based Subsidy Policy.
In addition to NBS, freight for the movement and distribution of the decontrolled fertilizers by rail and road is being provided to enable wider availability of fertilizers in the country. Subsidy under the NBS on decontrolled P & K fertilizers (except SSP) is being paid as per the actual claim. Under the Nutrient Based Subsidy Policy, the manufacturers/ importers (except SSP) have been allowed to claim freight from 1.4.2010 to 31.12.2010, based on the railway receipts, which includes an amount of ' 300 for secondary movement. Secondary movement freight has also been allowed to the SSP manufacturers. Freight subsidy under Nutrient Based Subsidy for rail movement has been allowed as per actual claim w.e.f. 1.1.2011 for 2010-11 and accordingly, the rates of subsidy has been revised w.e.f. 1.1.2011. A lump-sum freight of ' 200 PMT has also been allowed for SSP. The secondary freight on P&K fertilizers (except SSP) will be paid in line with the Uniform Freight Subsidy Policy w.e.f. 1.1.2011 as applicable in Urea. The freight for direct road movement from plant or port (primary movement) would be subject to lower of actual claim and equivalent rail freight upto a maximum distance of 700 Kms w.e.f. 1.1.2011.
The MRP of fertilizer, which was indicated by the Government and has been constant since 2002, has now been decontrolled w.e.f. 1.4.2010 under the Nutrient Based Subsidy Policy. However, the Government has decided to fix subsidy in such a manner that the MRP of the fertilizer does not affect the farmers adversely. Accordingly, the MRP of P&K fertilizers has registered an increase of ' 30 per bag. The MRP of SSP has reduced by ' 70 per bag. The MRP of the other P&K fertilizers has registered a minor increase under the NBS. It has been observed that the farmers have to pay only 25-40% of the actual cost of fertilizers. The MRP and subsidy released under the NBS during 2010- 11 has been as at Annexure-XI.
Under the present subsidy regime, fertilizers are provided to the farmers at the Maximum Retail Price, which is much below the actual cost of fertilizers. Accordingly, the farmers pay 25-40% of the actual cost of fertilizers and rest of the cost is borne by the Government. In the first phase of Nutrient Based Subsidy policy, the subsidy is released through the fertilizer industry (manufacturer/ marketer/importers). With respect to examination of the feasibility of disbursing subsidy directly to the farmers, Department of Fertilizers is appointing a consultant for implementation of proof of concept (pilot) study for examining the feasibility of implementation of tracking of fertilizers to the farm gate level and also of examining the feasibility of disbursement of subsidy direct to the retailer (farm gate/farmer). The proof of concept is proposed to be held in 7 States viz. Haryana, Andhra Pradesh, Tamil Nadu, Rajasthan, Madhya Pradesh, Assam and Maharashtra in approximately 50-70 blocks.
The amount of subsidy provided by the Government during 2001-02 was ' 12695.02 crore, which has increased upto ' 99494.71 crore in 2008-09. It was ' 64032.29 crore during 2009-10. The budget estimate for fertilizer subsidy for 2010-11 is ' 52840.73 crore. A statement showing subsidy released Department of Fertilizers on urea and P&K fertilizers is at Annexure-XII.
In order to update/finalize provisional rates of subsidy for Ammonium Sulphate and Naphtha based NPK complex fertilizer, Tariff Commission has been requested to undertake Cost Price Study and give its recommendations. The Government is also considering the report of the Tariff Commission in respect of freight subsidy from plant/ports to the districts.
Government of India has declared fertilizer as an essential commodity under the Essential Commodities Act, 1955 (ECA) and has notified Fertilizer Control Order, 1985 (FCO) under this Act. Accordingly, it is the responsibility of the State Governments to ensure the supply of quality of fertilizers by the manufacturers/importers of fertilizers as prescribed under the FCO under the ECA. As per the provision of the FCO, the fertilizers, which meet the standard of quality laid down in the order can only be sold to the farmers. There are 71 fertilizer testing laboratories including four laboratories of the Government of India at Faridabad, Kalyani, Mumbai and Chennai with an annual analyzing capacity of 1.34 lakh samples. The quality of the fertilizers imported in the Country is invariably checked by the fertilizer quality control laboratories of the Government of India. The State Governments are adequately empowered to draw samples of the fertilizers anywhere in the Country and take appropriate action against the sellers of Non- Standard fertilizers. The penal provision includes prosecution of offenders and sentence if convicted up to seven years imprisonment under the ECA, 1955 besides cancellation of authorization certificate and other administrative action. The Department of Fertilizers make deductions along-with penal interest on the quantity of the fertilizers for which the State Governments have reported to be Non- Standard.
During the year 2006-07, 2007-08 and 2008-09, the percentage of samples of fertilizers declared Non- Standard at all India level were 6.0%, 6.2% and 5.5% respectively. Payment of concession for P&K fertilizers and for Single Super Phosphate (SSP) is made by the Department taking into account the certificate of quality given by the respective State Governments in Proforma 'B' for the fertilizers received and sold in the State. Further, SSP units are required to produce month-wise 'Quality Certificates' issued by the State Governments of the State in which the units are located. The units are required to have well equipped laboratory to test the sample of its SSP. The SSP units are also required to print 'Quality Certified' on each bag released in the market. DOF also deputes PDIL to conduct first time technical inspection of the new SSP units. PDIL conducts six monthly inspections of the SSP units to check the quantity and quality of the fertilizers for which the units are claiming payment of subsidy. The units are also required to use only those grades of Rock Phosphate as inputs for manufacturing SSP under the NBS, which are notified by DOF from time to time. A statement showing the notified grades is at Annexure-XIII. DOF has also asked the State Government to constitute teams with that of PDIL to test samples of Single Super Phosphate (SSP) at the retailer level. The marketers of the SSP are also responsible for he quality of the fertilizer marketed by them. Department of Fertilizers has also constituted vigilance teams of the Officers of the Department to check the availability and quality of the fertilizers in the States.
The Government has received complaints of smuggling of subsidized fertilizers to the neighboring countries. Keeping in view the availability of the fertilizers in the country and the subsidy paid thereon, in addition to urea, the Government has decided to put the export of DAP/MOP in the restrictive category in order to discourage the exports and smuggling. The DGFT has been requested to place all other subsidized fertilizers also in the restricted category.
After decontrol of P&K fertilizers, Concession Scheme for SSP was introduced w.e.f. 1993- 94, which continued on ad-hoc basis for concession upto 30.4.2008. After the transfer of the administration of the Concession Scheme from Department of Agriculture & Cooperation to DOF w.e.f. October 2000, DOF revised the guidelines. Accordingly, a Technical Audit and Inspection Cell (TAC) under the aegis of PDIL was constituted vide guidelines dated 17.5.2001. The SSP manufacturers were required to use only those grades of Rock Phosphate, which has been notified by DOF from time to time, for claiming payment of concession. All the new SSP manufacturing units were required to undergo first time technical inspection of the units to ascertain their technical competence to manufacture SSP of the standards laid down under the FCO. Subsequently, the units were also required to undergo six monthly inspection to ascertain as to whether the units are working as per the tenets of the Concession Scheme. The units were allowed to claim 85% 'On Account' payment of concession to be settled subsequently by DOF based on the certification of sales issued by the State Governments in prescribed Proforma 'B'.
This practice has also been allowed to continue till date though the other policy parameters for SSP have been changed from time to time. The Government revised Concession Scheme for SSP w.e.f. 1.5.2008, which continued upto 30.9.2009. As per this policy, Department of Fertilizers announced All India MRP at ' 3400 PMT in place of the earlier system of indicating MRP by each State. As per the policy-dated 30.4.2008, the concession rates were announced month-wise separately for SSP based on the imported Rock Phosphate and that based on indigenous Rock Phosphate. The Concession was escalated/ de-escalated based on the rise/fall of the prices of the raw materials of Rock Phosphate, Sulphur and also the exchange rate. Then, DOF announced further revised policy on 13.8.2009 w.e.f. 1.10.2009, which continued upto 30.4.2010. As per this policy, the Government decided to leave the selling price of SSP open w.e.f. 1.10.2009 instead of the earlier MRP of ' 3400 PMT on all India basis.
The Government provided ad-hoc concession for an amount of ' 2000 PMT for powdered, granulated and boronated SSP. Only those SSP manufacturers were allowed to claim subsidy, which produced 50% of the annual installed capacity or 40,000 MTs per annum. The system of releasing 'On Account' as well as balance payment of concession continued as it was. Further, Nutrient Based Subsidy Policy has also been extended to SSP w.e.f. 1.5.2010. Accordingly, the criteria of capacity utilization has been continued for being eligible for NBS. As per the NBS for 2010-11, the per Kg NBS for Phosphate and Sulphur is ' 26.276 and ' 1.784 respectively. Accordingly, subsidy for an amount of ' 4400 PMT has been announced for 2010-11. This amount has been revised w.e.f. 1.1.2011 and accordingly, subsidy for an amount of ' 4296 PMT has been allowed in addition to a lump-sum freight of ' 200 PMT. Additional per metric tonne subsidy for Boronated SSP has also been allowed for an amount of ' 300 PMT. Though the MRP of the SSP in the NBS has been decontrolled but this fertilizer has been sold by the manufacturers at ' 3200 PMT based on the MOU between the manufacturers and the Government during 2010-11. Per Kilogram NBS for Phosphate and Sulphur in the SSP has also been announced for 2010-11 for an amount of ' 25.624 and ' 1.784 respectively in addition to the lump-sum freight of ' 200 PMT. The subsidy for boronated SSP has been continued and the manufacturers of Boronated SSP are allowed to fix their MRP based on demand and supply forces. In order to ensure quality of SSP, the SSP manufacturers are required to produce a certificate of quality issued by the State Governments in which the units are located. The units are required to write/print "Quality Certified" on each bag of the SSP.