New Urea Policy 2015

By: Staff Reporter
Evidence points towards a moderate success of the New Urea Policy. Although increasing indigenous production seems imperative, the rising need to address multi-nutrient deficiencies weakens the case for urea specific growth.

Urea has been understood to be an essential nitrogen-based fertiliser for agriculture being produced in India since 1959 (Food and Agriculture Organisation, 2005). As early as 1977, the Indian government put the Retention Pricing Scheme (RPS) in place under which the government fixed a price for each unit. The difference between this uniform sale price and varying cost of production across manufacturing plants of urea was paid as subsidy. Later in 2003, the RPS was replaced by the New Pricing Scheme (NPS) with the objectives of higher transparency, uniformity and to increase disbursements of subsidy payments to urea units (Chander, 2013). However, the promises were poorly realised despite consecutive amendments in the NPS till 2015. Thereafter, the need for a new intervention was felt. Thus, the New Urea Policy (NUP) was introduced in 2015 with the aim to enhance indigenous urea products, promoting energy efficiency, rationalising subsidy burden and incentivising manufacturing units to increase their production capacities.

New Urea Policy Energy Norms

The Department of Fertilisers, Government of India put in place NUP in 2015 which was to remain active for the next four financial years. The policy was extended by the Cabinet Committee on Economic Affairs from April 1, 2019 till further orders so as to ensure uninterrupted supply of urea to farmers (Business Line a, 2019).  Currently there are 31 urea units out of which 28 units use natural gas (25 functional units) and the rest 3 units use naphtha as feedstock (Department of Fertilisers, 2015).  The production of urea is an energy intensive process with requirements of high pressure and elevated temperature. It is expected that natural gas based units will improve energy efficiency, rationalise subsidy burden worth approximately INR 26.2 billion and lead to indirect savings of INR 22.1 billion, thus bringing the total savings to INR 48.3 billion (Press Information Bureau, 2015 a). Further, natural gas plants will help incentivise manufacturing units to maximise production. Thus, there was a need to promote energy efficiency and extend control over energy consumption. The government consequently declared pre-set energy norms at the onset of NUP. Under the guidelines, 25 gas units were classified into three categories based on actual energy consumption (ibid). The categories consist of group I with 13 gas units (5.0 G cal/MT); group II with four gas units (6.0-7.0 G cal/MT); and, group III with eight units( >7.0 G cal/MT).

Subsequently, a notification was sent out in March 2018 by the Department of Fertilisers specifying revised target energy norms for all the three groups which came into effect from April 2018. The revised target energy norms for group I were 5.5 Gcal/MT while it was 6.2 Gcal/MT for group II and 6.5 Gcal/MT for Group III. Thereafter, the target energy norms were further extended for two more years (Department of Fertiliser, 2018).

Of the 28 functional fertiliser plants, three are naptha based—Madras Fertilisers Ltd. (MFL), Southern Petrochemicals Industries Corporation (SPIC) and Mangalore Chemicals and Fertilisers Ltd. (MCFL). The government has been planning to switch from naphtha to natural gas plants to minimise the cost of production of urea. In 2014, the Department of Fertilisers convened a meeting to seek alternatives to supply gas at these three naptha manufacturing units. Options such as floating storage and regasification unit (FSRU) and gas tankers were found to be technically unfeasible (Press Information Bureau, 2015 b). Thus, the three units have been permitted to use naphtha as feedstock at an existing energy consumption norm of 6.5 Gcal/MT from 2018-2019 (Department of Fertilisers, 2018).

Reducing the Import Dependency

A considerable gap has existed between the amount of urea produced and consumed in India (Fig. 1). In 2012, with the aim to make India more self-reliant and reduce import dependency, the New Investment Policy came into existence to support the expansion of gas based plants and revive closed units. The need was further reiterated in the NUP. In an effort to increase indigenous urea production, various measures were undertaken. First, a coal bed methane based greenfield ammonia-urea complex was established at Panagarh, West Bengal with a capacity of 12.7 MT in 2017 (Press Information Bureau, 2018 a). Second, a brownfield project has been set up at Gadepan, Rajasthan with a 1.3 MMT per annum capacity by Chambal Fertilisers and Chemicals Limited (CFCL). Since the project commissioned in January, 2019, it has manufactured 0.6 MMT of urea (Press Information Bureau, 2019). Third, in order to increase the total urea units, the government is in the process of reviving five closed fertiliser plants, each possessing a production capacity of 12.7 MT per annum—Talcher (Odisha), Ramagundam (Andhra Pradesh), Gorakhpur (Uttar Pradesh) under Fertiliser Corporation of India Ltd. (FCIL)—and Sindri (Jharkhand) and Barauni (Bihar) under Hindustan Fertiliser Corporation Ltd. (HFCL). The government expects that after the commissioning of these plants, indigenous urea production will increase by 6.3 MMT per year which in turn would reduce India’s import dependency (The Economics Times, 2019). A new plant, Namrup-IV, of 0.8 MMT per annum capacity is likely to be installed at Brahmaputra Valley Fertilisers Corporation Limited to replace the existing low capacity plants, Namrup-II and Namrup-III (Brahmaputra Valley Fertilisers Corporation Limited, 2018). However, since the in-principle approval granted in 2018, there has been little progress in the commissioning of
this plant.

Neem Coated urea

In 2004 the Ministry of Agriculture included the neem coated urea under the Fertiliser Control Order, since it was found to improve the uptake of nitrogen, phosphorous and potassium. Further, studies indicated that it significantly improved soil health, reduced pest and disease attack, enhanced yield and increased nitrogen use efficiency (Ramappa and Manjunatha, 2017.). Therefore, in May 2015, the Indian government mandated the production of neem coated urea for all the domestic plants with an additional retail price of 5 per cent (Press Information Bureau, 2017).  However, India is currently facing an acute shortage of neem oil by over 85 per cent which raises concerns about the use of spurious oil in the production of neem coated urea (Jitendra, 2019). The study claims that in the country’s total oil yield of 3,000 tonnes is sufficient to coat only 15 per cent of total urea produced, and the remaining 85 per cent of urea could be adulterated (ibid).

Reportedly, India is currently offering hundred per cent neem coated urea for agricultural use (Ministry of Chemicals and Fertilisers, 2018 b), the efficacy of which is yet to be ascertained due to paucity of current data.

Introducing 45 kg urea bags

The Indian government had introduced 45 kg bag of urea in September 2017 at INR 242 instead of the 50 kg bag at INR 268 in an effort to minimise over-consumption as farmers tend to eyeball inputs rather than measure dispensation. This move claimed to reduce consumption by 10 per cent (Press Information Bureau, 2018 b). However, there is no statistical data as of now to evidence this assertion.

Despite the efforts post NUP to enhance the urea production, data from 2015 to 2018 reveal that there has been an insignificant impact of the policy on production and consumption. Import on the other hand, declined in the first year rising thereafter in the later periods (Table 1). It may be pertinent to note that notwithstanding the introduction of the 45 kg bags to optimise the consumption, there seems to be a marginal increase in the consumption of urea in the following period—quite contrary to the
expected outcomes.

Way forward

The domestic production of urea marginally improved from 22.6 to 24.4 MMT between the period 2014-2015 and 2015-2016 (Table 1) which marked the watershed between the pre and the post NUP. Thereafter, the data marks stagnation in production. The government’s initiative towards reducing the size of urea bags and the use of neem coated urea seems not to have made a sizeable impact.

Experts have been debating about the efficacy of a more symmetric distribution of subsidies over other fertiliser groups. This would promote balanced fertiliser use to address multi-nutrient deficiencies. A step in this direction was a recent increase in subsidy on non-urea fertilisers (Business Today, 2019). Further, the nutrient based subsidy (NBS) programme that already covers non-urea fertilisers should be extended to urea as well. Based on the nutrient content present, NBS is providing a fixed amount of subsidy on fertilisers since 2010 which is revised annually (Business Line b, 2019). The efficient implementation of Soil Health Card scheme to recommend fertiliser doses to farmers scientifically can help reduce the consumption of urea. Thus, an integrated approach is imperative under the overarching framework across various ministries.

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