Nutrient Based Subsidy (NBS) Scheme on Fertilisers: Issues and planned changes

GS 3 INDIAN ECONOMY Issues related to direct and indirect farm subsidies


       A policy of subsidising fertilisers was started in the later period of the Green revolution to increase agriculture production.

  • resulted in the increased production of food grains.
  • made India self-sufficient in the difficult times.
    • excessive subsidisation of Urea led to its overuse.
    • led to the worsening of soil quality.

Recently in News:

  • Centre is planning to restrict the number of fertiliser bags that individual farmers can buy during any cropping season under the Nutrient Based Subsidy(NBS) Scheme.
  • Since April 2010, the maximum retail price (MRP) of urea has been raised by hardly 11%.
  • The MRP of other fertilisers has gone up from 2.5 to four times during the same period.

Urea Consumption:

  • Nutrient Based Subsidy(NBS) was expected to wean away farmers from applying too much urea containing only nitrogen by linking subsidy to nutrient composition rather than products.
    • Between 2009-10 and 2019-20, urea consumption rose from 26.7 million tonnes (MT) to 33.7 mt.
  • Measure like compulsory neem-coating of all urea and making payment of fertiliser subsidy payment to companies conditional upon actual sales to farmers have not been effective.

Diversion of resources:

  • Due to its subsidy-led low price urea is always prone to diversion for non-agricultural use like 
    • binder by plywood/particle board makers
    • cheap protein source by animal feed manufacturers
    • adulterant by milk vendors.
  • Even after the implementation of PoS machines, anybody, can purchase any quantity of fertilisers. 
    • only put a cap of 100 bags per purchase.
    • a person can make this amount of purchase any number of times.


  • Indian soils have relatively low nitrogen use efficiency.
    • average of 22% in 2008.
  • Bulk of the urea applied contaminates ground- and surface water and atmosphere.
  • While the ammonia gets converted to nitrates
    • it increases soil acidity
    • NOx gases are major air pollutants.
  • Nitrate contamination of groundwater
    • leads to methemoglobinemia (blue baby syndrome).
    • has reached far beyond WHO safe limit.

Methods of calculation:

  • MRP is fixed after deduction of subsidies.
  • While the MRP of neem-coated urea:
    • is fixed by the government.
  • MRPs of non-urea fertilisers has been decontrolled
    • is being fixed by the companies.

Urea products

  • In case of Urea products
    • due to price regulation by the government.,
    • the price has been set at Rs 5,922.22 per tonne
    • against its average cost-plus price of around Rs 17,000 and Rs 23,000 per tonne 
      • for domestic manufacturers and importers.

Non-Urea products

  • In the case of non-urea fertilisers
    • MRP has been De-regularised and the government pays a flat per-tonne subsidy on the basis of nutrients mix in the fertiliser.
    • to ensure they are priced at “reasonable levels”.
      • currently Rs 10,231 for di-ammonium phosphate (DAP).
      • Rs 6,070 for muriate of potash (MOP).
      • Rs 8,380 for the popular ‘10:26:26’ complex fertiliser.

Process of claiming subsidy:

  • Before 2018
    • fertiliser companies were receiving subsidies after their bagged material had been dispatched.
    • received at a district’s railhead point or approved godown.
  • In 2018
    • Direct Benefit Transfer (DBT) system was introduced. 
      • Fertiliser companies receive subsidies after the actual sales of fertilisers to farmers.
    • 2.3 lakh retailers have point-of-sale (PoS) machineries. 
      • PoS machines are linked to Department of Fertilisers’ e-Urvarak DBT portal.
    • Anyone buying fertilisers have to provide their Aadhaar unique identity or Kisan Credit Card number. 
      • Will capture details like
  • quantities of the individual fertilisers purchased
  • along with the buyer’s name
  • biometric authentication.
  • Now on the basis of these registered information on e-Urvarak platform, a company can claim subsidy.

Effectiveness of the step:

  • Capping the total number of subsidised fertiliser bags will only be able to address the issue 
    • of diversion of Urea to bulk buyers/traders
    • even non-agricultural users such as plywood
    • animal feed makers. 
  • It won’t fix the problem of overuse of Urea.

Way forward

  • Urea should be covered under Nutrient Based Subsidy (NBS) 
    • its MRP should be hiked.
    • whereas the price of other components phosphorus, potash and sulphur should be reduced.
  • A flat per-acre cash subsidy can be implemented that could be used to purchase any fertiliser
    • including value-added and customised products.
  • A cap on the total number of subsidised fertiliser bags that any person can buy during an entire kharif or rabi cropping season should be implemented.


By implementing the provisions given above, the government will be able to realise the PM’s call for halving urea consumption by 2022.

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