Govt clears direct subsidy payout plan

GoM finalises three-step system for fertiliser subsidy.

The government has approved a three-step strategy to create a foolproof system for transferring fertiliser subsidy directly to farmers.

The decision was taken yesterday by a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee.

“The plan will be carried out in three phases,” a senior Department of Fertiliser (DoF) official told Business Standard.

In the first step, the government plans to track the movement of fertilisers from factories to farmers via retailers. This is expected to be over by December. After this, based on the collected data, it would start paying retailers.

According to DoF, there are around 230,000 retailers who will be paid based on the quantity of fertiliser they receive from companies or through the wholesale route. In the third stage, the government would gradually start paying farmers directly.

“The government should first conduct a dry run to create a database of farmers by recording details (of beneficiaries) at dealerships,” said Satish Chander, director general, Fertiliser Association of India.

However, industry officials, who refused to be named, said the strategy would increase transaction costs. Moreover, as dealers would have to bear the entire cost, the payout should be expeditious, they said.

Fertiliser companies said the strategy might cause delays and the deadline of March 2012 for directly transferring kerosene, LPG and fertiliser subsidies to consumers could be missed.

In order to account for all subsidy liabilities and lower the outgo, the government has set up a task force under Nandan Nilekani, the chairman of the Unique Identification Authority of India. It is expected to come out with its interim report soon. It has been given a deadline of March 2012.

The revised estimates put the subsidy bill — food, kerosene and fertilisers — at Rs 1,64,153 crore for 2010-11. The subsidy bill for food, petroleum and fertilisers is estimated at Rs 1,34,210 crore for 2011-12.

“Direct subsidy transfer is positive for the industry, as it removes the working capital issues which arise from delayed payments and underrecoveries,” said Tarun Surana, research analyst, Sunidhi Securities & Finance Ltd.