New Delhi: In a major push to its economic reforms process, India on Thursday cleared a far-reaching fertiliser policy under which subsidies will be based on the type of nutrient used, even as prices of urea will be hiked nearly 10 per cent.

The new policy was cleared by a meeting of the federal cabinet presided over by Prime Minister Manmohan Singh, overcoming some major resistance by several of the key constituents of the United Progressive Alliance (UPA) government.

The cabinet also cleared a proposal from the Fertiliser Ministry to increase the price of urea by nearly 10 per cent to Rs 5,310 per tonne from Rs 4,830 per tonne with effect from April 1, reports IANS.

"Urea, which has the maximum tonnage consumed on nitrogenous fertiliser in the country, will continue to be under the current maximum retail price regime," an official note issued after the cabinet meeting said.

The new policy is directed at making innovative fertiliser products available to farmers at reasonable prices, while ensuring that the use of such nutrients is balanced and goes helps increase agricultural productivity, officials said.

In the previous policy the subsidy was given on urea as a whole. This, experts said, had led to indiscriminate and unbalanced use of nutrients, leading to major erosion in the fertility of land and lower yield of crops.

Under the new regime, the subsidy on four essential nutrients -- nitrogen, phosphorous, potash and sulphur — as also other secondary fertilisers will be fixed individually. This will encourage the use of only those nutrients that are actually needed.

For the current fiscal, the government has kept the level of fertiliser at Rs 49,980 crore, which was nearly Rs 25,000 crore lower than the revised estimates for previous fiscal.

For the next fiscal, the quantum of the subsidy for each nutrient will be fixed after recommendations from an inter-ministerial committee, which has now been constituted under the chairmanship of the Fertiliser Secretary.

"Under the nutrient-based subsidy regime, since the subsidy on the subsidised nutrients, and consequently subsidised fertilisers, will be fixed, the retail prices at farm gate will be fixed by the companies," the official note said.

Nevertheless, the fertiliser industry has assured that under the new policy, the price line will be maintained around the current levels during the upcoming sowing season, the note added.

"The new regime is expected to depict the actual demand of fertilisers in the country and promote realistic pricing of fertiliser products in the international market," the official note said.

"Unshackling of fertiliser industry is also expected to attract fresh investment in this sector."

Finance Minister Pranab Mukherjee had laid the groundwork for the new regime in his budget speech delivered July 6, where he spoke of direct transfer of subsidy to farmers rather than routing it through fertiliser companies.

"In the context of the nation's food security, the declining response of agricultural productivity to increased fertiliser usage in the country is a matter of concern," the Finance Minister said, calling for the new regime.