Fertiliser is the latest sector to be ensnared into the government’s one-nation obsession. In mid-October, Prime Minister Narendra Modi launched the One Nation, One Fertiliser scheme, which officially has a rather long-winding name: Pradhan Mantri Bhartiya Jan Urvarak Pariyojana (PMBJUP).

Under the new scheme, all subsidised fertilisers – be they urea, Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP) or Nitrogen, Phosphorus and Potassium (NPK) – will be sold under the brand name of Bharat. Accordingly, two-thirds space of each fertiliser bag will have to display the standardised brand Bharat as well as the logo of the scheme PMBJUP. Fertiliser companies are allowed to display their respective names, brands, logos and other relevant product information only on the remaining one-third space of their bags. This norm has come into effect from October 2.

Government’s rationale

According to the government, the single brand will help standardise the subsidised fertilisers across the nation irrespective of the company manufacturing them. The government also advocates that the new scheme will ensure farmers the availability of affordable quality fertilisers of the Bharat brand.

The government believes that farmers are confused and in illusion about fertiliser brands. They do not get quality soil nutrients as retailers keep pushing certain brands in return for higher commission. Besides, some companies run aggressive advertising campaigns and project their brands to be of a superior quality. The single brand will eliminate such ways of misleading farmers. Besides, cut-throat competition among companies that push their brands will get reduced with this single branding and ensure sufficient supply of fertilisers across the country.

According to the government, the new scheme will reduce the criss-cross movement of fertilisers, reduce freight subsidy bill and improve timely availability of fertilisers to farmers. “With the One Nation, One Fertiliser scheme, the farmer will get rid of all kinds of confusion about quality of fertilisers and their availability. Now, the urea sold in the country will be of the same name, same brand and same quality, and this brand is Bharat,” stressed Mr Modi, while launching the scheme last month.

Convoluted system

The peculiar nature of the Indian fertiliser industry makes it easy for the government to dictate the terms of trade. The domestic fertiliser industry is highly controlled and heavily subsidised by the government. The fertiliser subsidy bill has been spurting year after year and is likely to cross Rs 2,00,000 crore in 2022-23. With the government spending so much, it seems to want to take credit and also drive home the point to the farmers that its PMBJUP scheme ensures that they get the best quality of fertilisers at affordable prices and in a timely manner. These factors appear to be the driving force behind the new branding scheme.

The fertiliser subsidy scheme, like most other government schemes, works in quite a convoluted way. The price of urea is directly controlled by the government, which fixes the maximum retail price (MRP) of urea. The MRP of urea has undergone very little change over the past many years. This has meant that urea is available at dirt-cheap price to farmers. The government bares the actual cost of production of urea by paying fertiliser companies the difference between the actual cost of production or the cost of imports and the MRP.  

The MRPs of non-urea fertilisers, such as DAP, MOP and NPK, are decontrolled on paper. Fertiliser companies are free to fix their own prices. However, the government pays fertiliser companies a particular amount of subsidy per tonne on each of these fertilisers. It also informally indicates prices of these fertilisers. The companies adhere to those prices, failing which they would not be paid the per-tonne subsidy.

Earlier, companies were paid subsidies by the government after their fertilisers reached a district’s railhead point or an approved warehouse.  But since March 2018, companies get subsidy payment only after actual sales to farmers by retailers. Each retailer has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak Direct Benefit Transfer (DBT) portal. Fertiliser companies get subsidy payment only after the PoS machine sends a buyer’s Aadhaar or Kisan Credit Card number, his or her name and biometric authentication to the government’s DBT portal. 

Awful effects

The One Nation, One Fertiliser scheme is riddled with several problems. It will disincentivise fertiliser companies from undertaking marketing and brand promotion activities as well as extension activities, which provide farmers vital information. These companies will now be reduced to contract manufacturers or importers for the government.

The government is making tall claims of providing standardised, best quality of fertilisers at affordable prices. However, the government is only standardising packaging and branding, which alone cannot assure a good quality of product.  

A recent CRISIL report notes that the new fertiliser policy is going to adversely squeeze the margins of manufacturers. With branding no longer in their control, companies will have to build strong marketing and promotional strategies to maintain their market share and growth. This will further add to their selling expenses and impact their margins.

These new measures add an additional layer of control to an already over-controlled industry. The new branding directions smack of the licence era regime and run contrary to the government’s oft-repeated claim of “minimum government and maximum governance”. There is a risk of the private sector moving out of the fertiliser sector. This will be disastrous as the public sector alone cannot assure quality and timely availability of fertilisers. 

A major problem with this government is the transactional nature of its thinking. This government has been time and again stating publicly the amount of subsidy it has been bearing on various services, be they rail tickets or other incentives. The fertiliser scheme also stems from the same mindset. Governments in modern, welfare economies are expected to deliver public services but not keep repeating the cost it is bearing again and again.

The government argues that the scheme will slash freight costs by preventing various fertiliser brands from criss-crossing the country. In fact, the freight component of the cost is minimal at around Rs 6,000 crore of the subsidy bill of a whopping over Rs 2,00,000 crore. The scheme will thus achieve little in terms of cutting costs.

If the government really wanted to prune the bloating subsidies, it should replace the current form of fertiliser subsidy with direct subsidies to farmers through the DBT system. The DBT is quite successful in almost all welfare schemes, including the PM Kisan Samman Nidhi. Direct subsidy to farmers will weed out leakages present in the current system. It can also decontrol one of the last vestiges of the licence era and bring much-needed reforms in the fertiliser sector.