Fertiliser subsidy

Explanation

Statement 1 is correct. Fertiliser subsidies in India are essentially open-ended entitlements — they are paid to fertiliser companies based on the difference between the cost of production (or import) and the controlled maximum retail price. When global input costs or crude-linked feedstock prices rise sharply, actual subsidy outgo can far exceed the Budget Estimate, as illustrated repeatedly in high-commodity-price years. This is a well-recognised fiscal risk in Indian public finance. Statement 2 is incorrect. Under-recoveries on petroleum products (LPG, kerosene, diesel historically) do affect government finances directly when the Centre compensates OMCs through cash transfers or budgetary support. To the extent the government provides direct budgetary compensation, it is reflected as an explicit expenditure and therefore does affect the fiscal deficit. The practice of issuing oil bonds (used in the mid-2000s) was specifically criticised because it deferred but did not eliminate the fiscal impact; 'off-budget' treatment was a legacy practice that has since been phased out. Treating current under-recovery compensation as entirely off-budget and fiscally neutral is therefore incorrect. Statement 3 is correct. Crude oil is the feedstock for naphtha and natural gas (used in urea production), and is also the basis of LPG pricing. A sustained spike in crude prices therefore simultaneously raises: (a) the cost of fertiliser production, inflating the subsidy bill beyond the budget estimate, and (b) the under-recovery per cylinder of LPG if retail prices are not revised commensurately. This dual channel means the fiscal shock from a crude price surge is larger than either component alone would suggest — precisely the concern raised when crude approaches the $115–$120/bbl. range.

Explanation

Statement 1 is incorrect. Urea is NOT covered under the Nutrient Based Subsidy (NBS) scheme. Urea has a separately administered, statutorily price-controlled subsidy mechanism — its Maximum Retail Price (MRP) is fixed by the government and the subsidy is paid directly to manufacturers/importers. NBS applies to non-urea P&K fertilisers (DAP, MOP, SSP, complex fertilisers etc.), where a flat per-nutrient subsidy rate is announced annually. This is a critical distinction in India's fertiliser subsidy architecture. Statement 2 is correct. The explicit rationale behind land-holding-linked and crop-linked fertiliser sales — as reflected in the FFS pilot — is twofold: (a) to prevent subsidised fertilisers from being diverted to non-farm uses (such as industrial use or sale in open markets), and (b) to discourage imbalanced, excessive application of chemical fertilisers and nudge farmers toward crop- and soil-appropriate nutrient use. The Fertiliser Secretary's appeal to states to 'check diversion of highly subsidised fertilisers to non-farming use' and ensure 'balanced use of nutrients based on soil conditions' directly confirms this. Statement 3 is correct. India's DBT-fertiliser model is a seller-side, point-of-sale DBT: the subsidy is NOT transferred to the farmer's bank account but is instead paid to the fertiliser manufacturer or importer AFTER a farmer's biometric/Aadhaar-authenticated purchase is recorded at a Point of Sale (PoS) device at the retail outlet. This makes the farmer the last-mile trigger for subsidy release, effectively ensuring that subsidy flows only when genuine farm-use is recorded — a design that underpins the broader anti-diversion framework.

Explanation

Statement 1 is incorrect. Under the NBS scheme, the government does NOT fix the MRP of P&K fertilisers. Instead, manufacturers and importers are free to set the retail price, while the government provides a fixed per-kg subsidy on each nutrient (N, P, K, S) based on nutrient content. This is precisely the distinction between NBS and the older price-control regime — MRP decontrol combined with nutrient-linked subsidy is the defining feature of NBS. Statement 2 is correct. Urea is excluded from the NBS framework; it is sold at a statutorily controlled MRP fixed by the central government, with the full difference between cost and MRP reimbursed to manufacturers through a separate concession scheme. Statement 3 is correct. DAP falls under P&K fertilisers and receives NBS subsidy, but global price volatility means the standard NBS rate often does not close the gap between international procurement cost and the government's desired retail price of ₹1,350 per bag. The government therefore extends special ad hoc assistance over and above NBS rates specifically for DAP — a recurring feature of fertiliser policy — precisely because NBS alone is insufficient to hold DAP at an affordable price when import costs spike.

Explanation

The Nutrient Based Subsidy (NBS) scheme, introduced in 2010, covers phosphatic and potassic (P&K) fertilizers — including DAP, MOP, complex fertilizers (NPK), and SSP — by linking subsidies to the nutrient content (N, P, K, S) per kilogram. Urea is explicitly kept OUTSIDE the NBS framework; instead, urea's retail price is directly controlled by the government (it has a fixed Maximum Retail Price set by the Centre), and the subsidy on urea is paid separately as a 'concession' rather than through the NBS mechanism. Hence, Pair 1 is incorrect — urea's price is controlled, not decontrolled, and it falls outside NBS. DAP contains nitrogen (N) and phosphorus (P), both of which attract per-kg NBS rates, making Pair 2 correct. MOP is the primary source of potassium (K) and receives a per-kg subsidy on its K content under NBS, making Pair 3 correct.

Explanation

Statement 1 is correct. Under the NBS regime, the government fixes a per-kg subsidy on nutrients (N, P, K, S), and companies are nominally free to fix retail prices. However, for fertilizers like DAP, the government operates special provisions beyond the NBS framework — for example, insisting that the 50-kg bag of DAP not be sold above ₹1,350, with the subsidy on 'P' revised each season to achieve this. This is explicitly outside the standard NBS structure. Statement 2 is incorrect. Urea is NOT covered under the NBS regime. Urea is separately subsidised through a different mechanism — its price is statutorily controlled and its subsidy is computed based on cost of production rather than the per-nutrient NBS formula. The NBS regime applies only to P&K and other non-urea fertilizers. The distinction between urea's separate subsidy regime and the NBS framework for P&K is a core feature of India's fertilizer policy. Statement 3 is correct. A stated objective of the NBS framework is to promote balanced nutrient use by making a range of fertilizers (including SSP, ammonium sulphate, complex NPKS fertilizers) available at affordable prices, thereby reducing overdependence on urea, which has historically been over-applied due to its heavily controlled low price.

Explanation

The NBS Scheme, in operation since April 2010, covers Phosphatic and Potassic (P&K) fertilisers — including DAP and SSP — by linking subsidies to their nutrient content (N, P, K, S). DAP is correctly paired: it falls under NBS and also enjoys a special government provision that keeps its retail price fixed, beyond the regular NBS subsidy. SSP is also correctly paired: it is covered under NBS and receives a freight subsidy specifically to promote it as an affordable substitute for DAP, which helps balanced nutrient use. Urea, however, is NOT covered under the NBS Scheme. Urea remains under a separate price-control and statutory-notification regime with a fixed MRP set by the government; its subsidy is not nutrient-linked under NBS. Therefore, pair 1 is incorrectly matched, while pairs 2 and 3 are correctly matched.