Nutrient-based subsidy

Indian Economy glossary

Also called: NBS · Topic: Agricultural Marketing, MSP, Buffer Stocks and PDS · NCERT: Beyond NCERT

Meaning

Nutrient-Based Subsidy (NBS) is a fertiliser subsidy scheme that began in April 2010. Under it, the government pays a fixed subsidy for every kg of nutrient in a fertiliser. The nutrients are N (nitrogen), P (phosphorus), K (potassium) and S (sulphur). It covers only decontrolled P&K (phosphatic and potassic) fertilisers, such as DAP and MOP. The company sets the retail price, and the market decides it.

  • Subsidy on one bag or tonne of a fertiliser = Σ (kg of each nutrient in it × fixed per-kg rate for that nutrient)

It matters because it decides how cheap each fertiliser is compared with the others. Urea stays outside NBS at a price fixed by the government, and this price gap is the main cause of India's skewed NPK use.

Explanation

How NBS works

  • Step 1: the government fixes a rate for each nutrient. There is one rate for N, one for P, one for K and one for S, per kg.
  • Step 2: it counts the nutrients in each fertiliser. Each fertiliser "grade" (a product with its own fixed nutrient mix) gets a subsidy based on how much N, P, K and S it contains.
  • Step 3: the company gets the subsidy. It then sells the fertiliser at a retail price it sets itself. The price is market-set, not fixed by the government.
  • Step 4: rates are revised every season. This happens for Kharif and for Rabi, in line with international prices. India imports much of its P&K fertiliser and raw material.

Worked example (imaginary rates, used only to show the method)

  • Suppose the NBS rates are: N = ₹40 per kg, P = ₹50 per kg, K = ₹10 per kg, S = ₹2 per kg.
  • A fertiliser grade has, in one tonne (1,000 kg): 100 kg N, 200 kg P, 0 kg K and 0 kg S.
  • Subsidy per tonne = (100 × 40) + (200 × 50) + 0 + 0 = 4,000 + 10,000 = ₹14,000.
  • Suppose the company's full cost is ₹50,000 per tonne. It can price the fertiliser near ₹50,000 − ₹14,000 = ₹36,000, plus its margin.
  • If world prices rise and the NBS rate is not raised, the ₹14,000 subsidy stays the same, so the farmer's price goes up.

Fixed subsidy vs fixed price: the key design choice

NBS (P&K fertilisers) Urea (controlled)
What the government fixes The subsidy per kg of nutrient The retail price (statutory MRP)
What floats The retail price The subsidy
Who bears a rise in world prices Mostly the farmer, until rates are revised Fully the government
  • Urea subsidy = cost of production or import − MRP. The government pays this gap to the company.
  • So under NBS, the government's cost is more predictable. Under urea control, the farmer's price is predictable.

What makes the NBS bill rise or fall

  • International prices of fertilisers and raw materials go up, so per-kg rates are revised upward and the bill rises.
  • More fertiliser is used or sold, so the bill rises.
  • Rates are cut when world prices fall, so the bill falls.

In India

  • Scheme start: NBS started in April 2010 for decontrolled P&K fertilisers such as DAP and MOP.
  • Who decides: the Union Cabinet approves NBS rates for each season.
  • Latest figure: Kharif 2025 (1 April to 30 September 2025): about ₹37,216.15 crore, covering 28 grades of P&K fertilisers [1].
  • Urea stays outside NBS. It is sold at a statutory MRP (a maximum retail price fixed by the government).

The result: a skewed NPK ratio

  • Urea's price is held low, while P&K prices float, so urea becomes relatively cheap.
  • Farmers use too much nitrogen.
  • The NPK ratio moves far from the ideal 4:2:1 (verify current).
  • Too much N leads to poorer soil health, lower returns from each extra kg of fertiliser, and nitrate pollution.

A related step on urea: neem-coated urea (100% from 2015)

  • The neem coating slows the release of nitrogen, so more of it reaches the plant. This improves nitrogen-use efficiency.
  • It also makes urea unfit for industry, which stops cheap urea being diverted to plywood and dye units.

Don't confuse with

  • Urea subsidy: it fixes the price (statutory MRP), and the subsidy is the gap (cost − MRP). NBS fixes the subsidy, and the price floats. Urea is not under NBS.
  • Food subsidy: this is paid to FCI for grain. Food subsidy = (Economic cost − CIP) × quantity issued + buffer carrying cost. NBS is an input subsidy on fertiliser.
  • Direct income support (PM-KISAN): it is cash paid per farmer, decoupled from what is grown or which inputs are used, and it is green-box. NBS is tied to a specific input (fertiliser nutrients), so it changes how much of each input farmers use.
  • Neem-coated urea: this is a product rule for urea, about efficiency and stopping diversion. It is not a subsidy formula, and it has no link to NBS.

Prelims Hooks

  • NBS was introduced in April 2010. It gives a fixed subsidy per kg of nutrient: N, P, K and S (sulphur is included).
  • NBS covers decontrolled P&K fertilisers only (for example DAP and MOP). Urea is outside NBS and is sold at a statutory MRP. This is a common trap.
  • Under NBS, the retail price is market-set by companies. The subsidy rate is fixed by the government and revised each season (Kharif and Rabi) in line with international prices.
  • Kharif 2025 NBS: about ₹37,216.15 crore for 28 grades of P&K fertilisers [1].
  • Cheap urea together with market-priced P&K has skewed use away from the ideal NPK ratio of 4:2:1.
  • Neem-coated urea became 100% from 2015. It slows nitrogen release and stops diversion to industry.

Mains Points

  • NBS design and the NPK imbalance: NBS made P&K subsidy fixed per nutrient, but urea stayed price-controlled.
  • Urea becomes relatively cheap, so nitrogen is overused.
  • The result is poor soil health, falling returns per kg of fertiliser and nitrate pollution.

  • A key reform is bringing urea under NBS, so that all nutrients are priced on the same basis and the NPK ratio moves back toward 4:2:1.

  • Prices as signals (NCERT Box 2.6): fertiliser subsidies weaken the price signal and lead to overuse. NBS lets P&K prices follow the market to some extent. But much of the fertiliser subsidy still benefits the fertiliser industry and farmers in prosperous regions, and it is a huge fiscal burden. A better path is targeted, decoupled support: DBT for fertiliser and PM-KISAN-type income transfers.

  • Who bears the risk of world prices: under NBS, a jump in international prices first reaches the farmer through higher retail prices, until the rates are revised. Under urea control, the government bears it. This is an equity vs fiscal-predictability trade-off. Most farmers are poor, so seasonal revision of rates is the tool that balances the two.

Related concepts

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Sources

  1. 1PIB — Cabinet approves NBS rates for Kharif 2025 on P&K fertiliserspib.gov.in · tier 1