Saturday 10 December 2022
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EconomyNeed for One Nation One Fertiliser policy explained

Need for One Nation One Fertiliser policy explained

One Nation, One Fertiliser (ONOF) programme will be implemented across the country from starting with urea and later crop nutrients di-ammonium phosphate (DAP) or muriate of potash (MOP) will be sold under a single brand name, ‘Bharat’, Union Minister for Chemical and Fertilisers Mansukh Mandaviya said today.

Farmers across the country can avail of a uniform fertiliser policy of the union government that the Union Ministry of Chemicals and Fertilisers issued as an order on 24 August in the form of a memo. This is the Narendra Modi government's 'One Nation One Fertiliser' scheme under which all manufacturers under the union government’s fertiliser subsidy scheme, newly renamed the Pradhanmantri Bhartiya Janurvarak Pariyojna (PMBJP), will have to use a single brand and logo for fertilisers.

The Indian National Congress (INC) is criticising the scheme, branding it as a way for Prime Minister Modi to promote himself. The opposition party has termed the scheme the "One Nation, One Man, One Fertiliser" scheme, asking how the scheme would benefit farmers and if it stopped fertiliser companies from engaging in extension activities as they would be selling under a single official brand name.

What is the One Nation One Fertiliser scheme?

Under One Nation One Fertiliser, all fertiliser companies, State Trading Entities (STEs) and Fertiliser Marketing Entities (FMEs) will have to use only the "Bharat" brand for fertilisers and logo under the PMBJP. "The single brand name for UREA, DAP, MOP and NPKS etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertiliser Companies, State Trading Entities (STEs) and Fertiliser Marketing Entities (FMEs)," the ministry said in the order. 

The memo outlines new packaging specifications for companies, which are

1. The new Bharat brand name and PMBJP logo will cover two-thirds of the front of the fertiliser packet
2. The manufacturing brands can only display their name, logo, and other information on the remaining one-third

Further, the union government has asked fertiliser companies not to procure old bags from 15 September onwards. The memo said that the rollout of the new bags under One Nation One Fertiliser will begin on 2 October. The order added that the companies would get 4 months to exhaust the old packaging from the market.

Why did the Modi government formulate the One Nation One Fertiliser policy?

The union government controls the price of the most used fertiliser, urea, which means that all manufacturing companies sell at a fixed MRP, which is 10-20% of the cost of production. The government provides 80-90% of the cost of production to the manufacturers in the form of a subsidy. Every year, the fertiliser subsidy bill of the government is massive (more than Rs 2 lakh crore in 2022-23, for example). This is second only to the food subsidy in terms of expenditure. 

While the union government does not control the prices of other fertilisers like diammonium phosphate (DAP) and muriate of potash (MOP), their users get subsidies too, implying that the manufacturers form a cartel and sell these products at mutually decided MRP. Now, selling the product under their own brand identity on the one hand but availing of the state facility of subsidy is an odd practice which means profiteering at the expense of taxpayers' money.

Other than subsidies to companies to cover the cost of production, the government pays manufacturers freight subsidies or the cost of transporting their products to the end-user. Single-brand fertilisers will reduce transport subsidies, which is at the moment estimated to be over Rs 6,000 crore per annum. While the government decides where manufacturers can sell their products under the Fertiliser (Movement) Control Order, 1973, due to the freight subsidy provided, manufacturers sell across longer distances as well.

Then, brand-wise demand for fertilisers in specific areas differs. If manufacturers stop selling urea under individual brands, there would be no need for the Indian Farmers Fertiliser Cooperative (IFFCO) to transport fertilisers across states, thus reining in the fertiliser subsidy expenditure.

The government felt, sources said, that farmers ought to know the financial burden the state incurs in providing fertilisers at a cheaper rate.

Why is the opposition criticising the new rule?

According to the opposition, this commodification of fertilisers may impact quality and discourage manufacturers from bringing newer and more efficient products to the market if there is less scope for building a unique brand identity, as producers will be reduced to mere importers or contractors of fertilisers. 

Also, the union government has set targets to become "atmanirbhar" or self-reliant in fertilisers, which are currently imported in bulk. The targets are a motivation for Indian firms to stay in the business even as some private players such as the Tatas and Indo Gulf Fertilisers have exited the urea business in recent years. 

Now, producers are not ready to spend on a brand they do not own. "Once in a while, some companies may bear the expense, but it will be difficult to spend continuously on advertisements where brand value for that company is zero," an industry official said.

Those in the trade fear that a government brand would add red tape to the fertiliser manufacturing sector where almost all aspects, from product pricing to cost structure to geographical distribution and sale, are government-controlled.

Does this Modi government scheme enjoy experts' backing?

It does. Experts in agriculture, chemical and the economy have asked for more reforms in the fertiliser sector for years. The huge subsidy bill must be reduced, they say, while botanists ask for a nutrient balance in fertilisers containing nitrogen, phosphorus and potassium (N, P and K), which is currently skewed in favour of urea.

Fertiliser prices stayed quite stagnant in the 1980s and 1990s. When the prices rose, the government faced stiff opposition, forcing older dispensations to reverse the price hike on urea. The reversal and the fixing of the MRP for urea time and again disturbed the relative prices of different fertilisers. The disturbance, in turn, led to a preference for urea that costs a fraction of the price of others like DAP and MOP. The subsidy on urea also led to its diversion to non-agricultural works.

The UPA government had introduced the Nutrient Based Subsidy (NBS) system in 2010 to address the growing imbalance in fertiliser use in many states. However, only non-nitrogenous fertilisers (P and K) moved to NBS and urea was left out. Thus, the price of urea once again could not be decontrolled. The fertiliser subsidy bill, in the meantime, kept rising.

The then-chief economic adviser noted in the Economic Survey of 2016 that the fertiliser sector was highly regulated, causing a major distortion in the sector. The subsidy that is intended to help small farmers was actually benefiting a small proportion of them: "24% is spent on inefficient urea producers of the remaining, 41% is diverted to non-agricultural uses and abroad; of the remaining, 24% is consumed by larger—presumably richer — farmers."

Experts then asked for Direct Benefit Transfer (DBT) to farmers and decontrol of the price of fertilisers. This would make the system empower farmers by giving them a gamut of options. It would motivate manufacturers to improve the quality of their products. All these measures would help reduce the subsidy bill, experts said. 

While the government has tried DBT in fertilisers on a pilot basis, the massive subsidy targets it announced till 2026 do not hint at a full-fledged rollout of the DBT system soon.

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