With reference to chemical fertilizers in India, consider the following statements: 1. At present, the retail price of chemical fertilizers is market-driven and not administered by the Government. 2. Ammonia, which is an input of urea, is produced from natural gas. 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries. Which of the statements given above is/are correct?

Updated 11 Apr 2026 · From UPSC Prelims GS Paper I 2020, Q48

Contents13
UPSC Prelims GS2020Indian Economy
  1. A1 only
  2. B2 and 3 only
  3. C2 only
  4. D1, 2 and 3
Show answer

Answer: (B) 2 and 3 only

Statement 1 (Fertilizer prices are market-driven, not government-administered) — NOT CORRECT:

The Indian government heavily controls fertilizer prices.

Under the New Urea Policy (2015), the government fixes the price of urea.

For Phosphorous and Potassium fertilizers, the Nutrient Based Subsidy (NBS) scheme provides subsidies.

So prices are NOT purely market-driven.

Statement 2 (Ammonia is a key ingredient, and natural gas is used to produce it) — CORRECT:

Fertilizer production uses about 1.2% of world's total energy, and 90% of that goes into making ammonia.

Ammonia is the key ingredient in nitrogen fertilizers.

It can be produced from natural gas.

Statement 3 (Sulphur is a byproduct of oil refining used in fertilizer production) — CORRECT:

Sulphur is indeed a major byproduct of oil refining and gas processing.

It is used in producing phosphoric acid fertilizer (through the "Wet Process").

Oil refineries like the Mathura refinery produce sulphur as a byproduct.

Answer: B (2 and 3 only).

Key Takeaway:

Government controls fertilizer prices in India (not market-driven).

Ammonia = key fertilizer ingredient = made from natural gas.

Sulphur = oil refinery byproduct = used in phosphatic fertilizers.

Why this was asked

The government controls fertilizer prices through subsidies and administered pricing, not market mechanisms, making fertilizer policy a major fiscal burden.

Natural gas shortages and rising international prices directly impact India's fertilizer production costs since ammonia production depends heavily on natural gas as feedstock.

The question tests understanding of the industrial linkages between oil refining, gas processing, and fertilizer manufacturing in India's chemical industry.

Fertilizer Price Control in India

Indian Economy retail price market-driven administered by the Government

Fertilizer Price Control: Government vs Market Mechanisms

Must know

Fertilizer prices in India are government-controlled, not market-driven

New Urea Policy (2015) fixes urea prices centrally

Nutrient Based Subsidy (NBS) scheme covers P&K fertilizers

Good to know

Government provides subsidies to keep farmer prices low

India's fertilizer pricing is heavily government-administered, not market-driven. The state controls prices through two main mechanisms to ensure affordability for farmers.

Price Control Mechanisms

Fertilizer Type

Policy/Scheme

Price Control Method

Key Feature

Urea

New Urea Policy (2015)

Fixed retail price

Uniform price across India

Phosphatic (P)

Nutrient Based Subsidy

Subsidy per nutrient

Companies set MRP, govt pays subsidy

Potassic (K)

Nutrient Based Subsidy

Subsidy per nutrient

Market forces + subsidy support

Why Government Controls Prices

Food security: Ensures farmers can afford fertilizers for crop production

Political consideration: Fertilizer subsidy is a major electoral issue

Market failure: Pure market pricing would make fertilizers unaffordable for small farmers

Exam traps

Trap: Statement 1 claims prices are market-driven — this is the opposite of reality

Confusion: Students may think decontrol = market pricing, but subsidies still exist

Remember: Even under NBS, government subsidies heavily influence final prices

Ammonia Production for Fertilizers

Science And Technology Ammonia input of urea natural gas

Ammonia: Key Fertilizer Ingredient from Natural Gas

Must know

Ammonia (NH₃) is the primary ingredient in nitrogen fertilizers like urea

Natural gas is the main raw material for ammonia production

Good to know

Haber-Bosch process converts nitrogen + hydrogen into ammonia

Fertilizer industry consumes 1.2% of world's total energy

Ammonia is the foundation of nitrogen fertilizer production. About 90% of fertilizer industry's energy goes into making ammonia, primarily from natural gas through industrial processes.

Ammonia to Fertilizer Process

%%{init: {"flowchart": {"wrappingWidth": 460}}}%%
flowchart TD
  s1["`**Natural Gas (CH₄)**
Primary raw material providing hydrogen`"]
  s2["`**Haber-Bosch Process**
N₂ + 3H₂ → 2NH₃ (high pressure & temperature)`"]
  s3["`**Ammonia (NH₃)**
Key intermediate chemical`"]
  s4["`**Urea Production**
Ammonia + CO₂ → Urea fertilizer`"]
  s5["`**Application**
Nitrogen source for plant protein synthesis`"]
  s1 --> s2
  s2 --> s3
  s3 --> s4
  s4 --> s5

Why Natural Gas

Hydrogen source: Natural gas provides hydrogen atoms needed for NH₃

Energy efficiency: Most cost-effective method compared to coal or electrolysis

Availability: Abundant supply in major fertilizer-producing countries

Exam traps

Remember: Ammonia is an input for urea, not the final product

Don't confuse: Ammonia vs Ammonium — ammonia is the gas (NH₃)

Key fact: Natural gas → Hydrogen → Ammonia → Urea fertilizer

Sulphur in Fertilizer Production

Science And Technology Sulphur phosphoric acid fertilizer by-product of oil refineries

Sulphur: Oil Refinery Byproduct for Phosphatic Fertilizers

Must know

Sulphur is a major byproduct of oil refining and gas processing

Used to produce phosphoric acid for phosphatic fertilizers

Good to know

Wet process converts sulphur to fertilizer-grade phosphoric acid

Indian refineries like Mathura produce sulphur as byproduct

Sulphur emerges as a valuable byproduct when oil refineries remove sulfur compounds from crude oil. This sulphur becomes a key raw material for phosphatic fertilizer production.

Sulphur to Fertilizer Chain

%%{init: {"flowchart": {"wrappingWidth": 460}}}%%
flowchart TD
  s1["`**Crude Oil Processing**
Oil refineries remove sulfur compounds`"]
  s2["`**Sulphur Recovery**
Byproduct sulphur extracted and purified`"]
  s3["`**Sulphuric Acid (H₂SO₄)**
Sulphur converted to acid`"]
  s4["`**Phosphoric Acid**
H₂SO₄ + Rock Phosphate → H₃PO₄ (Wet Process)`"]
  s5["`**Phosphatic Fertilizers**
DAP, SSP, TSP production`"]
  s1 --> s2
  s2 --> s3
  s3 --> s4
  s4 --> s5

Sulphur Sources & Uses

Source

Process

Fertilizer Application

Example in India

Oil Refineries

Desulfurization of crude oil

Phosphoric acid production

Mathura Refinery

Gas Processing

H₂S removal from natural gas

Sulphuric acid manufacturing

ONGC facilities

Mining

Direct extraction (limited)

Industrial sulphur supply

Imported mainly

Exam traps

Key connection: Oil refinery → Sulphur → Phosphoric acid → P fertilizers

Don't miss: Sulphur is a byproduct, not the main product of refineries

Remember: Wet process uses sulphur for phosphatic fertilizers, not nitrogen ones

Fertilizer Subsidy Schemes in India

Indian Economy

Major Fertilizer Subsidy Schemes: NUP & NBS

Must know

New Urea Policy (2015) replaced earlier urea policies

Nutrient Based Subsidy (2010) covers P&K fertilizers

Good to know

Direct Benefit Transfer being piloted for fertilizer subsidies

Total fertilizer subsidy is ₹70,000+ crore annually

India operates two parallel subsidy systems — one for urea and another for phosphatic and potassic fertilizers. Both aim to keep farmer prices affordable while ensuring industry viability.

Subsidy Scheme Comparison

Scheme

Covers

Mechanism

Price Setting

Subsidy Calculation

New Urea Policy

Urea only

Fixed retail price

Government sets uniform price

Cost minus fixed price

Nutrient Based Subsidy

P&K fertilizers

Per-nutrient subsidy

Companies set MRP

Fixed rate per kg of N/P/K/S

DBT (Pilot)

All fertilizers

Direct cash transfer

Market rates

Subsidy to farmer's account

Fertilizer Subsidy Structure

# Fertilizer Subsidies
## New Urea Policy
- Fixed retail price
- Energy efficiency norms
- City gas priority
- Indigenous production promotion
## Nutrient Based Subsidy
- P&K fertilizers
- Per nutrient rates
- Balanced fertilization
- Reduce urea over-use
## Direct Benefit Transfer
- Pilot in select districts
- Aadhaar linking
- Reduce leakages
- Market-based pricing

Policy Objectives

Affordability: Keep fertilizer costs low for farmers

Balanced nutrition: Promote P&K use to reduce soil degradation from urea overuse

Efficiency: Reduce subsidies while maintaining agricultural productivity

Self-reliance: Encourage domestic fertilizer production capacity