Performance audit of fertiliser subsidy CAG to look into diversion to industry smuggling to other countries

New Delhi, Nov 13 (PTI) The CAG has initiated a performance audit of fertiliser subsidies and will specifically look into the diversion of subsidised urea for industrial use, as well as smuggling to neighbouring countries.

    The Comptroller and Auditor General of India (CAG), which started the audit work in June this year, will collect sample data from 169 districts across 15 states. These include 149 districts where urea consumption is higher than both the national and state averages, sources said.

    The audit is likely to be completed by mid-2027 and the report could be tabled by the winter session of Parliament.

    In the last fiscal, the government spent nearly Rs 2 lakh crore as susbidy on fertilisers including urea and P&K (potassium and potassic) nutrients. For this fiscal, the Centre has budgeted Rs 1.71 lakh crore as fertiliser subsidy, but the figure would jump sharply due to the West Asia conflict.

    Sources said the audit, which spans the current and next fiscal, will cover all aspects of urea fertiliser.

    The main objectives are demand assessment of urea, diversion of urea for industrial use, smuggling to neighbouring states, efficacy of the government schemes aimed at reducing usage of urea, energy efficiency of urea plants and import planning, among others, they added.

    The audit will also look into the fertiliser movement mechanism, their transportation arrangements, freight subsidy and associated monitoring and control system.

    The federal auditor will assess the demand and efficiency of the urea subsidy framework, which is also the terms of reference of the audit.

    Higher consumption of urea, above the national and state average, in 149 districts has raised concerns within the government.

    The selected 169 districts to be assessed for alleged diversion, includes 149 initially chosen by the CAG based on their consumption pattern, which were above the state and national average. Later, 20 other districts were added after recommendations from the agriculture ministry and some experts to examine their consumption patterns.

    This integrated audit approaches a wider cooperation and participation from different government departments, like the GST network, agriculture ministry, Railways and others who will assist the auditors in their assessment of the fertiliser control system and the efficacy of the regulators.

    Sources said alleged diversion of subsidised urea from some of the bordering districts in Uttar Pradesh, Rajasthan, Punjab and Bihar has also raised doubts about whether it is also being smuggled out of the country.

    The highest 37 districts being assessed for overconsumption of urea are in UP, followed by 16 each in Bihar and Tamil Nadu, and 14 each in Punjab and Gujarat. The 20 districts later added for further examination are in Karnataka, Rajasthan, MP, and Maharashtra.

    India's total urea consumption is estimated at around 400 lakh tonnes annually, of which more than 100 lakh tonnes are imported, with domestic production not meeting the total demand.

    Even for domestic production it requires a huge amount of imported natural gas, as the fuel constitutes 90 per cent of input cost of urea.

    The overconsumption of subsidised urea raises additional subsidy burden on the energy bill and increases our import dependence, besides adding to greenhouse gas emissions, a senior official said.

    "Because agricultural urea is universally subsidised without caps based on farm size or wealth, substantial volumes have historically been diverted into non-agricultural sectors. Technical Grade Urea (TGU) is a core commercial raw material in resins, glues, plywood fabrication, crockery manufacturing, cattle feed, and commercial explosives,” the official added.

    Currently, urea is the only fertiliser that remains under heavy statutory control.

    Since it is the most widely used source of Nitrogen, the government keeps a tight grip on it to protect farmers from price volatility.

    The Centre fixes the Maximum Retail Price (MRP), which is usually kept low, often well below the actual cost of production. The government pays the difference between the cost of production/import and the fixed MRP directly to the manufacturing companies as a subsidy. At present, the MRP of urea is Rs 242 per bag of 45 kg each, (exclusive of neem coating charges and applicable taxes).

(This story has not been edited by THE WEEK and is auto-generated from PTI)