Fertilizer Subsidy in India:

Key Issues and Concerns

Vijay Paul Sharma, Professor

Indian Institute of Management

Ahmedabad, India

Email: vijays@iimahd.ernet.in

Vijay Paul Sharma

Presentation Agenda

Overview of Fertilizer Production and

Consumption Trends

Fertiliser Subsidy Debate: Who Benefits and

What’s Impact of Subsidy on Farm Income

Concluding Observations & Policy Implications

Vijay Paul Sharma

Fertiliser Sector:

Emerging Trends

Vijay Paul Sharma

Overview of Indian Fertilizer

Market

3rd Largest Producer & 2nd Largest Consumer

Production: 14.7 million tonnes in 2000-01 to 16.65

million tonnes in 2011-12 16.06 million tonnes in

2012-13

Consumption: 16.7 Million Tonnes in 2000-01

28.12 Million Tonnes in 2010-11 25.58 in 2012-13

RISING IMPORTS???

<2 million tonnes in 2002-03 12.4 million tonnes

in 2011-12

Vijay Paul Sharma

Indian Fertilizer Sector vis-à-

vis Global Markets - 2009

India’s Share in Global Imports

World

Imports

Indian

imports

Share of

global trade

Rank

Rock Phosphapte 19.6 5.3 27.0% 1

Phosphoric Acid 4.4 2.6 59.1% 1

Sulphur 28.6 1.8 6.3% 6

Ammonia 14.4 1.6 11.1% 2

Vijay Paul Sharma

Recent Trends

Steep Increase in Consumption BUT

Stagnant Production: Rising Dependence

on Imports/Volatile Markets

Excessive Use in Certain Areas BUT Low

Level of Consumption in Some

Widening Imbalance in Nutrient Use Vijay Paul Sharma

Increasing Gap between

Production and Consumption

Imports

Production

Consumption

0

10

20

30

40

50

0

5

10

15

20

25

30

20

01

-02

20

02

-03

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-04

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-12

20

12

-13

Imports

(%

of

Cons.)

Producti

on/Consum

pti

on (

Mn

Tonnes)

Vijay Paul Sharma Source: FAI (2013)

Relatively Low Fertilizer Use in

India

Vijay Paul Sharma Source: FAI (2013)

Consumption

(kg/ha)

TE 1989-90 TE1999-00 TE2011-12

Above 200 5

(1.4%)

31

(6.6%)

135

(25.4%)

150-200 21 (5.7) 45 (9.6) 77 (14.5)

100-150 42 (11.4) 94 (20.0) 115 (21.6)

75-100 46 (12.5) 62 (13.2) 57 (10.6)

50-75 70 (19.0) 78 (16.6) 59 (11.1)

25-50 85

(23.1)

80

(17.1)

55

(10.3)

<25 99

(26.9)

79

(16.8)

35

(6.5)

Vijay Paul Sharma Source: FAI (2013)

All India Plant Nutrient

Consumption Ratio

Year N P2O5 K2O

1981-82 6.0 1.9 1

1991-92 6.0 2.9 1

1992-93 9.5 3.2 1

2000-01 6.8 2.6 1

2002-03 6.5 2.5 1

2008-09 5.3 2.3 1

2009-10 4.3 2.0 1

2010-11 4.7 2.3 1

2011-12 6.7 3.1 1

2012-13 8.2 3.2 1

Partial decontrol of

Fertilizers in 1991&

2010

Source: FAI (2013)

Imbalanced Use of Nutrients:

Pre- & Post-NBS Period

State Pre-NBS (2010-11) Post-NBS (2012-13)

Kg/ha N:P:K Kg/ha N:P:K

Punjab 241.6 19.1 : 5.9 :1 250.2 61.8 : 19.2 :1

Haryana 209.4 20.5 : 7.1 :1 207.6 61.4 : 18.6 :1

Tamil Nadu 211.1 2.1 : 0.9 :1 164.6 3.9 : 1.5 :1

A.P. 252.8 3.9 : 2.1 :1 189.3 7.1 : 2.8 :1

West Bengal 160.4 2.0 : 1.4 :1 163.1 2.9 : 1.6 :1

Bihar 173.5 5.8 : 1.9 :1 192.3 30.8 : 10.1 :1

Orissa 59.3 3.3 : 1.7 :1 90.3 6.2 : 2.4 :1

Gujarat 174.1 6.9 : 2.9 :1 109.6 13.2 : 3.4 :1

All India 144.1 4.7 : 2.3 :1 128.3 8.2 : 3.2 :1

Source: FAI (2013)

Increasing Multi-Nutrient

Deficiency

Deficiency of at least 6 Nutrients – N, P, K, S, Zn

and Boron

ing Deficiency of Secondary & Micro-nutrients

– Limiting Crop Response to NPK Application

Extent of Nutrient Deficiency

N (89%); P (80%), K (50%); Sulphur (41%);

Zinc (49%); Boron (33%), Iron (12%), Manganese (5%),

Molybdenum: 13%

Vijay Paul Sharma

Fertiliser Subsidy Debate:

Who Benefits?

Vijay Paul Sharma

Subsidy Debate??

Fertilizer Subsidy Largely Benefits Manufacturers Gulati (1990), Gulati & Sharma (1995), Panagariya (2001) Gulati

& Narayanan (2003), etc.

Comparison of Domestic & International Prices

Assuming World Price: US$150-200/MT; Actual: US$200->550/MT

Assuming Competitive Market Structure of World Industry

Industry Concentration Very High; Strong Cartels

India Small Country: No Impact on World Prices

Significant Impact on World Prices: Positive Association between

Indian imports and World Prices

Fertilizer Subsidy Benefits Large Farmers and

Commercial Agriculture Vijay Paul Sharma

Market Power of Top-5 Global

Fertilizer Companies

Company Market Power

N P K

Yara + + + + + + -

Mosaic + + + + + + + + +

Agrium + + + + + + +

PotashCorp + + + + + + + +

Kali & Salz Group + + - + + Vijay Paul Sharma

Urea Imports by India &

International Prices: +ve Association

Vijay Paul Sharma Source: FAI (2013)

Concentration of Fertilizer

Consumption: States & Crops

Major States: TE2011-12 Major Crops: 2006

Top 5: 54%, Top10: 83% of Total Use Top 5: 78% of Total Use

Fertiliser Use on Major Crops

& Farm Sizes: Inverse Relationship

0

50

100

150

200

250

Avg. Paddy Wheat Cotton

Kg/ha

Marginal Small Semi-medium Medium Large

Vijay Paul Sharma Source: GoI (2012)

Share in Total Cropped Area vis-à-

vis Total Fertilizer Use: Small vs Large

0.0

5.0

10.0

15.0

20.0

25.0

30.0

<1ha 1-2ha 2-4ha 4-10ha >10ha

Share (

%)

in T

CA/Fert.

Use

Share (%) in TCA Share (%) in Fert. Use

Vijay Paul Sharma Source: GoI (2012)

Impact of Fertiliser Subsidy

on Farm Income

Vijay Paul Sharma

Fertilizer Subsidy & Net

Income from Paddy

-10000

-5000

0

5000

10000

15000

20000

25000

Hy

Pb

Assam CG

U.P

.

Bih

ar

India

Odis

ha

Ktk

A.P

.

W.B

.

TN

Jhar

Rs/ha

Current 2010-11 W/O Subsidy

Vijay Paul Sharma Source: Computed from CACP (2012)

Fertilizer Subsidy & Net

Income from Wheat

Vijay Paul Sharma Source: Computed from CACP (2012)

Fertilizer Subsidy Trends (At Current Prices)

Total Subsidy

Subsidy as % of

GDP

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

20

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-11

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-12

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-13

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13

-14

(RE)

20

14

-15

(B)

Subsid

y (

% o

f G

DP)

Subsid

y (

Rs. Crore)

Vijay Paul Sharma Source: GoI (2014)

Concluding Observations &

Policy Implications

Fertilizer Subsidy Important for Improving Profitability of

Farming: Yields & Cost of Production

Subsidy Concentrated in Few States & Crops But More

Benefits to Small and Marginal Farmers

Higher Usage of Fertilizer/ha

Higher Area under Fertilizer-Intensive Crops

Higher Share in Fertilizer Use vis-à-vis Share in Total Cropped Area

Complete Withdrawal of Fertilizer Subsidy will Make Farming

Unprofitable

Need to Contain Subsidies: Huge Fiscal Burden, Declining

Fertilizer Use Efficiency, etc.

Better Targeting and/or Rationing an Option

Vijay Paul Sharma

Concluding Observations &

Policy Implications

Direct Transfer of Fertilizer Subsidy: Rationale Not Clear

& even Difficult to Implement (Informal Tenancy, Working

Capital Constraint, 152 Manufacturers vis-à-vis 136 Million Farm

Households, etc…..)

Rationalize Pricing of Fertilizers (Urea) & Effective

Extension Services to Promote Balanced Use of Nutrients

Special Focus of Micro- and Secondary Nutrients: Need

Strong Policy Support

Step Up Domestic Production Capacity: Dependence on

Imports – Highly Volatile Markets & Strong Cartels

Vijay Paul Sharma

Vijay Paul Sharma