NEW UREA POLICY 2015
What’s in news?
CCEA approves extension of New Urea Policy 2015 for existing gas-based units
- New Urea Policy-2015 was notified with the objective of maximizing indigenous urea production
- The Cabinet Committee on Economic Affairs approved the proposal of the Department of Fertilizers to extend the duration of New Urea Policy-2015 for existing gas based urea unit from Apr 1, 2019.
- This will facilitate continuation of operations and regular supply of urea to farmers.
New Urea Policy-2015:
- The New Urea Policy-2015 was notified with the objective of maximizing indigenous urea production, promoting energy efficiency in urea production and rationalizing subsidy burden on the government.
- As per the policy, the preset energy norms for gas based urea units fixed during earlier policies were mopped up.
National Urea Policy-2015:
- This policy was approved by Cabinet Committee on Economic Affairs (CCEA) in 2015 with the main focus to help in facilitating new investments in the sector, particularly by way of new plants being set up and the augmentation of existing capacity.
- The NUP(National Urea Policy) is effective from June 1, 2015 to March 31, 2019.
- Under this policy, Urea producers are allowed to produce neem coated urea upto 100 percent of production and making it mandatory to produce a minimum of 75 percent of domestic urea as neem coated, so that farmers are benefitted.
- National Urea Policy has mainly two objectives of maximizing indigenous urea production and promoting energy efficiency in urea units to reduce the subsidy burden on the Government. Savings in energy shall reduce the carbon-footprint and would thus be more environments friendly.
- This policy ensures timely supply of urea to farmers at same Maximum Retail Price (MRP) with lesser financial burden on the exchequer. It will reduce import dependency in the urea sector.
- Neem coated urea is not fit for industrial use, so chances of its illegal diversion to industries will also be lesser.
- When farmers use conventional urea, about half the applied nitrogen is not assimilated by the plant and leaches into the soil, causing extensive groundwater contamination. Spraying urea with neem oil slows the release of nitrogen, by about 10 to 15 per cent, concomitantly reducing consumption of the fertilizer. According to recent research, the “sustained release” nature of neem-coated urea has seen rice yields jump 9.6 per cent and wheat by 6.9 per cent.
- By all these measures, import dependency of India for urea is likely to reduce drastically. Presently, India is importing about 80 lakh metric tonnes of urea out of total demand of 310 lakh metric tonnes.
- The neem-coating also precludes an age-old malpractice of this cheap fertilizer being diverted for use in the chemical industry and, most harmfully in states like Punjab and Haryana, as an additive in milk to whiten it.
- Infrastructure is another area where the policy has not made significant impact; poor infrastructure is impacting capacity
- Urea price controls have wrong incentivized use of nitrogenous fertilizers and affected soil health in an adverse way.
- It boosts energy efficiency through economization of rail freight and boosts domestic production only in marginal terms.
- There is government’s inability to reimburse manufacturers on time means they have to borrow. This situation has discouraged investment in new urea plants, so that the government is forced to import to make up the shortfall, which is about a quarter of its total urea requirement – even in a drought year like the 2015-16 kharif season, the government imported about 7.5 million tonnes between April and January.
- Average landed price of imported urea is $300 a tonne, which, at the exchange rate of $1 = Rs 69.14, is sold to farmers at $77.52 a tonne. This large differential in retail prices has encouraged illegal and unaccounted for cross-border sales to Nepal and Bangladesh.
- The wide price differential between urea and P and K fertilizer- the complex fertilizer Di-ammonium Phosphate, for instance, retails at about Rs 24,000 a tonne – has discouraged the use of the latter, resulting in a serious nutrient imbalance in the soil. An FAI seminar paper showed that the N:P:K ratio was 10:4:1 in 2011-2012 against an ideal 4:2:1. Since then it has grown worse. Although this applies only to six states but these are the principal agricultural states.
- National Urea Policy is expected to bring benefits of subsidy rationalization and maximization of domestic production, thus reducing reliance on imports. Further, the policy is also expected to reduce complexity in implementation of previous policies.
- With tightening of energy consumption norms for urea units, the profit on energy savings would be driven by their ability to reduce energy consumption level. Many units would still earn reasonable profit on energy saving even with tightening of norms.
- But, problem, then, comes back to the administered pricing policy and the government’s increasing inability to afford the subsidy. Political compulsions, especially compelling after two years of drought, make this an inopportune time to raise prices. Allowing the industry to charge market prices and paying farmers a direct subsidy is one possible solution to this problem.