Vijay Paul Sharma, a professor at the Indian Institute of Management Ahmedabad, presented on the key issues around India's fertilizer subsidy program. He discussed trends showing rising fertilizer consumption but stagnant production, leading to increasing imports. While subsidies are meant to benefit farmers, analysis shows large fertilizer companies and large/commercial farms benefit more. Small and marginal farmers do see income gains from subsidies but imbalanced nutrient use is a problem. The large and growing cost of subsidies also presents a fiscal challenge for the government. Sharma concludes by arguing for rational pricing, balanced nutrient use through extension services, increasing domestic production capacity, and better targeting of subsidies.
UGC NET Paper 1 Mathematical Reasoning & Aptitude.pdf
IGIDR- IFPRI - Possible Ways to Rationalize Fertilizer Subsidies, Vijay Paul Sharma, IIM
1. 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
2. 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
4. 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
5. 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
6. 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
7. Increasing Gap between
Production and Consumption
Imports
Production
Consumption
0
10
20
30
40
50
0
5
10
15
20
25
30
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Imports(%ofCons.)
Production/Consumption(Mn
Tonnes)
Vijay Paul Sharma Source: FAI (2013)
12. 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
14. 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
15. Market Power of Top-5 Global
Fertilizer Companies
Company Market Power
N P K
Yara + + + + + + -
Mosaic + + + + + + + + +
Agrium + + + + + + +
PotashCorp + + + + + + + +
Kali & Salz Group + + - + +
Vijay Paul Sharma
16. Urea Imports by India &
International Prices: +ve Association
Vijay Paul Sharma Source: FAI (2013)
18. 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)
19. 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(%)inTCA/Fert.Use
Share (%) in TCA Share (%) in Fert. Use
Vijay Paul Sharma Source: GoI (2012)
21. Fertilizer Subsidy & Net
Income from Paddy
-10000
-5000
0
5000
10000
15000
20000
25000
Hy
Pb
Assam
CG
U.P.
Bihar
India
Odisha
Ktk
A.P.
W.B.
TN
Jhar
Rs/ha
Current 2010-11 W/O Subsidy
Vijay Paul Sharma Source: Computed from CACP (2012)
22. Fertilizer Subsidy & Net
Income from Wheat
Vijay Paul Sharma Source: Computed from CACP (2012)
23. 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
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14(RE)
2014-15(B)
Subsidy(%ofGDP)
Subsidy(Rs.Crore)
Vijay Paul Sharma Source: GoI (2014)
24. 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
25. 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