Govt plans to roll out nutrient-based fertiliser subsidy in phases

The Department of Fertilisers is in favour of rolling out the new subsidy scheme in phases, with the first phase involving giving cash subsidy to retailers instead of the existing practice of giving subsidy to companies. The roll-out of the scheme that aims at giving subsidy directly to farmers would, however, be only next year.

With fertiliser purchasing during the kharif season almost over and the rabi season beginning October 1, the department does not want to introduce any changes in the middle of the season. “This year, fertiliser subsidy will be on the existing pattern, since the rabi season is starting in another one week and the kharif season is over,” Fertiliser Secretary Atul Chaturvedi told Business Standard. He said the shift towards the new system should ideally be done in the lean period of January to March.

Finance Minister Pranab Mukherjee had in his 2009-10 Budget speech announced the government’s intention to move towards a nutrient-based subsidy scheme along with a system of direct transfer of subsidy to farmers. A senior finance ministry official said the scheme was expected to bring down the subsidy burden of the government that had shot up to Rs 1.17 lakh crore last year due to an unprecedented increase in input prices.

Under the new system, farm gate price of fertilisers would fluctuate and the government would give a fixed nutrient-based subsidy to farmers. The existing system has the price fixed but subsidy fluctuates depending on the cost of production.

Chaturvedi said some operational issues needed to be sorted before the roll-out of the new system. A group of ministers (GoM) headed by Mukherjee and with representation of nine ministries has been formed to tackle the issues. The department would propose to the GoM a first phase move to a fixed subsidy system by disbursing it to retailers on the basis of actual transfer of sales.

Among issues which needed to be sorted was the basis of deciding the quantum of subsidy to each farmer. “There are about 140 million farmers in the country. The Indian Council for Agricultural Research and the agriculture ministry will be working out a formula for deciding the quantum of subsidy to farmers,” said Chaturvedi. For disbursement of subsidy to them, it was important that farmers have a bank account and title for land holding, he added.

Another major issue was to streamline the cost of production. According to Chaturvedi, the cost varies from Rs 8,000 a tonne to Rs 20,000 a tonne, depending on whether a plant is using gas, naphtha or furnace oil, but fertilisers are retailed at the same price. “With the movement towards fixed subsidy, high cost plants will become unviable. Even if all plants move to gas, it will take two years and there will be a need for management of the transition phase,” he said.