Nutrient-Based Subsidy (NBS) Regime

The Nutrient-Based Subsidy (NBS) regime represents a major reform in India’s fertiliser subsidy policy. Introduced by the Government of India in April 2010, it marked a shift from product-based subsidies to nutrient-based subsidies for phosphatic and potassic (P&K) fertilisers. The purpose of this reform was to encourage balanced fertilisation, rationalise subsidy expenditure, and improve soil health by promoting the judicious use of all plant nutrients rather than over-reliance on nitrogenous fertilisers such as urea.

Background

Before the implementation of the NBS regime, India’s fertiliser subsidy system was primarily product-specific, meaning the government fixed maximum retail prices (MRPs) for fertilisers and reimbursed manufacturers for the difference between the cost of production and the selling price. This approach, although successful in keeping fertiliser prices low for farmers, created several inefficiencies.
The product-based subsidy system led to a price distortion between urea and other P&K fertilisers, resulting in the excessive use of nitrogen and the declining use of phosphorus and potassium. Over time, this imbalance led to nutrient-deficient soils, declining productivity, and environmental degradation. Moreover, the increasing subsidy burden placed a heavy strain on government finances.
To address these challenges, the NBS Policy was introduced for P&K fertilisers, while urea continued under the older cost-plus subsidy system. The NBS sought to rationalise subsidies, reduce fiscal pressure, and promote balanced fertilisation practices aligned with scientific nutrient management.

Objectives of the NBS Regime

The NBS regime was designed with several interrelated objectives:

• Promoting balanced fertilisation: By linking subsidies directly to nutrient content rather than specific products, the regime encourages farmers to apply fertilisers based on the specific nutrient needs of crops and soils.
• Rationalising subsidy expenditure: It aims to bring predictability and transparency to the subsidy outlay by fixing a per-kilogram subsidy rate for each nutrient annually.
• Encouraging competition and efficiency: Allowing fertiliser companies to set their own MRPs (within reasonable limits) promotes market competition, efficiency in production, and innovation.
• Enhancing soil health: Balanced application of nutrients helps restore soil fertility and ensures sustainable agricultural productivity.
• Ensuring timely availability: The regime also aims to ensure that fertilisers are available to farmers at reasonable prices throughout the agricultural cycle.

Coverage and Mechanism

The NBS regime applies to all non-urea P&K fertilisers, including popular products such as Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP), Single Super Phosphate (SSP) and various complex fertilisers.
Under this system, the Government of India fixes annual per-kilogram subsidy rates for the four key nutrients — Nitrogen (N), Phosphorus (P), Potassium (K) and Sulphur (S). The subsidy amount for any fertiliser is then calculated based on its nutrient composition.
For instance, if a particular fertiliser contains 18 % nitrogen and 46 % phosphorus, the total subsidy payable is computed by multiplying these nutrient contents with the per-kilogram subsidy rates of N and P, respectively.
Manufacturers and importers are free to set the MRPs of their products by considering international prices, raw material costs, and domestic demand conditions. However, these MRPs are closely monitored by the Department of Fertilisers to prevent excessive pricing and ensure that the benefits of subsidies reach the farmers.

Key Features of the NBS Regime

• Nutrient-linked subsidies: The subsidy amount is directly linked to the nutrient content of fertilisers instead of the product type.
• Freedom in pricing: Fertiliser companies can fix MRPs of P&K fertilisers, fostering competition and flexibility.
• Annual revision of subsidy rates: The government reviews and revises the per-nutrient subsidy rates periodically, depending on global market trends and exchange rate fluctuations.
• Inclusion of fortified fertilisers: Subsidies are provided for fertilisers fortified with secondary and micronutrients such as zinc, boron, and molybdenum to promote holistic soil nutrition.
• Market-driven supply: Since MRPs are not administratively fixed, the system encourages market efficiency, reduces administrative delays, and improves fertiliser availability.

Significance of the NBS Regime

The introduction of the NBS regime represented a structural shift in India’s fertiliser policy and had wide-ranging implications for both farmers and the economy.

1. Balanced Nutrient Application: By providing equal importance to all essential nutrients, the NBS promotes rational fertiliser use. This reduces the overuse of nitrogen and helps correct nutrient imbalances in Indian soils, thereby sustaining agricultural productivity in the long term.
2. Improved Soil Health: Excessive application of nitrogenous fertilisers over several decades had led to soil degradation and declining fertility. The NBS encourages farmers to use a more balanced nutrient mix, improving soil texture, microbial activity, and nutrient retention.
3. Fiscal Rationalisation: Linking subsidies to nutrient content allows the government to exercise greater control over fiscal expenditure. It also provides a transparent mechanism for calculating subsidy amounts, thereby reducing administrative inefficiencies and potential misuse.
4. Encouragement of Fortified Fertilisers: The NBS promotes the use of fertilisers fortified with micronutrients, helping address widespread micronutrient deficiencies in Indian soils.
5. Incentivising Industry Efficiency: The policy encourages fertiliser producers to optimise production costs, improve distribution networks, and innovate new nutrient formulations.

Issues and Challenges

Despite its progressive design, the NBS regime faces several practical challenges that have limited its effectiveness in achieving all intended goals.

1. Exclusion of Urea: Urea, India’s most widely used fertiliser, remains outside the NBS framework and is still heavily subsidised with a fixed low price. This price differential between urea and P&K fertilisers distorts farmer behaviour, leading to excessive nitrogen use and under-application of other nutrients.
2. Imbalanced Fertiliser Use Persists: Although the NBS has improved nutrient balance to some extent, the ideal N:P:K ratio of 4:2:1 remains far from reality in many regions, with some states showing ratios as skewed as 8:3:1 or worse.
3. Price Volatility: Since MRPs are linked to global raw material and energy prices, fluctuations in international markets can make P&K fertilisers expensive, even after subsidies. This can discourage their use, particularly among small and marginal farmers.
4. Subsidy Burden: While NBS rationalises subsidy calculations, the overall fertiliser subsidy burden remains substantial, often exceeding budgeted estimates due to currency fluctuations and rising import costs.
5. Monitoring and Implementation: Ensuring quality control, preventing diversion of subsidised fertilisers for non-agricultural uses, and verifying actual nutrient composition are ongoing administrative challenges.
6. Need for Local Customisation: The uniform national subsidy rates may not adequately address regional soil nutrient deficiencies, cropping patterns, or climatic conditions. A more localised subsidy approach could enhance the policy’s effectiveness.

Reforms and Recent Developments

In recent years, the Government has taken steps to strengthen and modernise the NBS framework:

• Direct Benefit Transfer (DBT): Subsidies are now released to fertiliser companies only after the sale of fertilisers to farmers is confirmed through point-of-sale devices, enhancing transparency and accountability.
• Periodic Review of Rates: The NBS rates are reviewed bi-annually to align with changing international prices of fertiliser inputs.
• Inclusion of New Fertiliser Grades: Additional complex fertilisers and fortified variants have been brought under the NBS scheme to provide farmers with more choices.
• Discussions on Including Urea: Policymakers have debated extending the NBS regime to urea, which could correct existing price distortions and further promote balanced fertilisation.

For the Rabi 2025–26 season, the Government has approved revised NBS rates for P&K fertilisers to ensure affordability for farmers while maintaining fiscal discipline.

Significance for India’s Agricultural Policy

The NBS regime is closely aligned with broader agricultural and environmental goals, including sustainable soil management, efficient use of natural resources, and fiscal consolidation. It supports India’s ambition to achieve food security without compromising environmental integrity. By making subsidies transparent and nutrient-linked, it paves the way for evidence-based policymaking and better coordination between agricultural extension services, fertiliser distribution, and soil health management.