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Prelims Capsule


Fertilizer industry in India, why it needs reformation? Issues and Solutions

Fertilizer industry in India, why it needs reformation? Issues and Solutions


  • GS 3 || Economy || Agriculture || Primary Inputs (Seeds, Irrigation, Fertilizers, Pesticides)


  • The subsidy bill of the Indian government has been growing exponentially over the years.
  • India is the second-largest user of fertilizer in the world, after The fertilizers industry is the second most important industry in India after iron and steel.
  • Subsidies on fertilizers in India were introduced more than 40 years ago to make them affordable to farmers and ultimately, to ensure food security for the country.

Nitrogen-based fertilizers

  • In the case of nitrogenbased fertilizers, the Indian fertilizer industry has made significant progress. After China, India is the world’s second-largest consumer of urea fertilisers.
  • India is also the world’s second-largest producer of nitrogenous fertilisers and the third-largest producer of phosphatic fertilisers. Because India has limited potash reserves,  must rely on imports to meet our needs.
  • The majority of productions are under the control of the government. The Fertilizer Corporation of India Ltd, National Fertilizers Limited, Hindustan Fertilizer Corporation Ltd., and others are well-known PSUs.

Neem Coating of Urea

  • The Department of Fertilizers (DoF) has made it mandatory for all the domestic producers to produce 100% urea as Neem Coated Urea (NCU).The benefits of the use of NCU are as under
  • Improvement in soil health.
  • Reduction in usage of plant protection chemicals.
  • Reduction in pest and disease attack.
  • An increase in yield of paddy, sugarcane, maize, soybean, Tur/Red Gram.
  • Due to the slow release of Nitrogen, Nitrogen Use Efficiency (NUE) of Neem Coated Urea increases resulting in reduced consumption of NCU as compared to normal urea.

Importance of the fertilizer sector

  • The importance of the fertilizer sector in India cannot be overstated, as it provides critical input for the growth of Indian agriculture and is an unavoidable factor to consider in achieving the goal of food grain self-sufficiency.
  • The fertilizer sector would include not only the fertilizer industry but also certain agricultural activities that are inextricably linked to fertilizer production and distribution.
  • Farmers are the fertilizer industry’s most important consumers, so the fertilizer industry must cater to their needs.
  • With falling farm yields exacerbated by climate change, doubling farmers’ real income by 2022 will be difficult, so continuing to subsidize fertilizer will be counterproductive to the government’s stated agricultural goals. The fertilizer policy needs to be revisited in this context.

Issues with Fertilizer Industry

  • NPK-The central government launched the nutrient-based subsidy policy (NBS) in 2010 for P and K fertilizers.
    • The policy was formulated to promote the balanced use of N, P, and K fertilizers.
    • The policy allowed the manufacturers of P and K fertilizers to fix their maximum retail prices (MRPs) at reasonable levels. The subsidy provided would be based on per kilogram of the nutrient. 
    • The agreed ratio of NPK elements for balanced soil health and crop growth is 4:2:1 but the average ratio of NPK use in India is 8.2:3.2:1.
    • This also is heavily skewed in different states ranging from 33.7:8.0:1 in Punjab and 1.3:0.7:1 in Kerala in 2019-20.
  • Heavy dependence on Imports 
    • The fertilizer industry’s overall productivity is low. In terms of fertilizer production, India is still a long way from being self-sufficient (about 50 percent of fertilizers are imported).
    • India produces 85 percent of its urea domestically but imports most of its phosphate and potash (P & K) fertilisers.
    • for DAP- Diammonium Phosphate is about 12 mT – Domestic production is about 5 mT. 
    • The total demand for Muriate of Potash is about 3 mT – This is entirely imported. 
  • Raw Material Availability and Pricing
    • The Indian fertilizer industry faces significant challenges in terms of raw material availability and fluctuating prices.
    • The supply and demand factors are the primary cause of fertilizer price fluctuations. India is also hampered by a scarcity of natural resources needed to produce fertilisers. 
    • In the case of urea, the country’s natural gas supply is insufficient. Increases in the price of oil on the international market can hurt the fertilizer industry.
  • Irrigation facility expansion is limited, and as a result, fertilizer consumption is low, resulting in low demand and, as a result, industry growth is limited.
  • Obsolete Technology: The majority of the fertilizer industry is run by PSUs that use decade-old technology, resulting in huge losses as well as a competitive advantage.
  • Low demand is also hampered by the lack of expansion of irrigation facilities, which has hampered the growth of the industry.
  • Other problems connected to Urea Overuse 
    • No denial policy leads to unintended beneficiaries & black marketing of fertilizers especially Urea. 
    • Heavy use of Urea causes soil infertility & environmental degradation including groundwater pollution. It also causes health impacts of the Blue baby syndrome.

Way forward

  • Extend the Nutrient Based Subsidy (NBS) model to urea: In 2010, the government implemented the Nutrient Based Subsidy (NBS) to address the growing imbalance in fertilizer use.
    • Only non-nitrogenous fertilizers (P and K) were moved to NBS, leaving urea behind.
    • We need to expand the NBS model to include urea and allow for urea pricing to be rationalized in comparison to non-nitrogenous fertilizers and crop prices.
  • Self-reliance and Self-sufficiency: We must be self-sufficient and not rely on fertilizer imports.
    • We can avoid the whims of high international price volatility in this way. In this direction, the public sector is reviving five urea plants in Gorakhpur, Sindri, Barauni, Talcher, and Ramagundam.
  • Alternative plant nutrition sources must be developed
    • Discussions with farmers and consumers reveal a strong desire to switch to non-chemical fertilizers, as well as a demand for price parity and subsidy parity between chemical and organic and biofertilizers.
    • This also opens up the possibility of repurposing a large amount of crop biomass that would otherwise go to waste, as well as increasing the value of livestock byproducts,
    • To develop alternative fertilizers, we need to scale up and improve our innovations. Even though compost contains a low amount of nitrogen, there are now technologies available to supplement it.
  • For Eg- Bio-fertilizers are cheap, renewable, and eco-friendly, with great potential to supplement plant nutrients if applied properly.
  • Improve fertilizer efficiency: India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
  • The recently developed Nano urea by IFFCO shows promising results in reducing the usage of urea.
  • Neem Coating of Urea
    • The Department of Fertilizers (DoF) has made it mandatory for all the domestic producers to produce 100% urea as Neem Coated Urea (NCU).


  • Rather than broadcasting fertilizer across the field, India should focus on improving fertilizer efficiency through need-based use.
  • IFFCO’s recently developed Nano urea shows promise in terms of reducing urea usage. Following testing, such products must be promoted quickly.
  • These changes will help boost agricultural productivity, mitigate climate change, provide an alternative to chemical fertilizers, and balance the fiscal impact of fertilizer subsidies on Union budgets in the years ahead.

Mains model Question

  • What are the challenges facing India’s fertilizer industry? How subsidies distort the use of different types of fertilizers.