Why is it in the News?

The Modi government has brought di-ammonium phosphate (DAP), muriate of potash (MOP) and all other fertilisers that receive nutrient-based subsidy (NBS) support under “reasonable pricing” controls.

What is the Central Government's Decision on Non-Urea Fertilizers?

• The Department of Fertilisers (DoF) under the Ministry of Chemicals & Fertilisers has issued comprehensive guidelines for assessing the fairness of Maximum Retail Prices (MRPs) for all non-urea fertilisers covered by the Nutrient Based Subsidy (NBS) scheme.
• Effective from April 1, 2023, these guidelines set maximum allowable profit margins for different types of fertilizer companies: 8% for importers, 10% for manufacturers, and 12% for integrated manufacturers.
• Companies deemed to be earning excessive profits beyond these thresholds during a financial year (April-March) are required to reimburse the surplus to the DoF by October 10 of the following fiscal year.
• Failure to comply within the specified timeframe will result in the imposition of a 12% per annum interest rate on the refund amount, calculated from the day after the end of the financial year.
• Any unreasonable profits will be deducted from future fertilizer subsidy payments by the government.

How will Companies Unreasonable Profit be Determined?

• Fertilizer companies are required to conduct a self-assessment of unreasonable profits, using cost auditor's reports and audited cost data approved by their board of directors.
• This information must be submitted to the Department of Fertilisers (DoF) by October 10 of the subsequent fiscal year.
• The DoF will then review the reasonableness of Maximum Retail Prices (MRPs) submitted by companies by February 28 for each completed previous financial year.
• Subsequently, it will prepare a report on any unreasonable profits earned and to be recovered from the companies.

Significance of the New DoF Guidelines:

• Non-urea fertilizers are already informally price-controlled, a measure expected to continue until the conclusion of the Lok Sabha elections.
• The new guidelines establish indirect MRP controls on non-urea fertilizers by limiting the profits companies can earn from their sales.
• These limits will be based on the total cost of sales, encompassing production or import costs, administrative overheads, selling and distribution expenses, as well as net interest and financing charges.
• Essentially, the new guidelines extend the detailed cost monitoring and price control regime currently applied to urea to other fertilizers.

What is the Nutrient Based Subsidy (NBS) Scheme?

• NBS fertilisers are technically decontrolled unlike urea, whose maximum retail price (MRP) is fixed by the government.
• Under the NBS scheme, introduced in April 2010, their MRPs are supposed to be market-determined and set by the individual companies selling them.
• The government merely pays a fixed per-tonne subsidy on each of these fertilisers, linked to their nutrient content or specific percentage of nitrogen (N), phosphorous (P), potassium (K) and sulphur (S).
• Unlike the previous system, where subsidies were product-specific, the NBS Scheme encourages balanced fertilization by discouraging excessive use of high-nutrient fertilizers like urea, DAP, and MOP.
• It aims to promote innovation in fertilizer products and encourages the use of complex fertilizers and single super phosphate to address nutrient imbalances.
• However, the scheme faced challenges as urea consumption increased significantly, leading to nutrient imbalances and subsequent failure.