Transferring fertiliser subsidy

Farmers do not favour direct cash transfer

The government’s decision to devise a plan to transfer fertiliser subsidy directly into the bank accounts of farmers has both merits and demerits that need to be weighed meticulously before taking a final call. Prima facie, the intention behind the move seems commendable as it seeks to plug the leakages in subsidy disbursement. But its implementation is unlikely to be hassle-free. This is because all farmers do not use fertiliser and in the case of the users, too, the assessment of their subsidy entitlement will be complicated. The quantity of fertiliser used by each farmer, as also the amount of subsidy on different types of fertiliser, varies widely and keeps changing from time to time. The subsidy amount, therefore, cannot be worked out till fertiliser is actually bought by the cultivators.

 
At present, the subsidy is routed through fertiliser companies, though the payment is released only after recording the sale of the products at the subsidised rates through the specially designed point-of-sale devices installed at every retail outlet. Though the government calls it “direct benefit transfer” (DBT) — perhaps because it bypasses the state and district administrations — it, clearly, is a misnomer as the amount goes to fertiliser companies and not to the farmers. The payment is generally released after a lag, resulting in accumulation of arrears. Going by the industry estimates, the unpaid dues stood at over Rs 33,600 crore in the beginning of November. These may swell further to Rs 60,000 crore by the end of the current fiscal year.

 
What the fertiliser ministry intends to do now is to replace it with a direct cash transfer (DCT) mechanism where the subsidy goes straight to the cultivators. However, the farmers seem wary of this system. A study sponsored by the NITI Aayog bears this out. It has found that over 63 per cent farmers do not favour direct cash payment. Although the government has dismissed this study, maintaining that it did not cover adequate number of potential beneficiaries, the apprehensions of farmers appear well-founded. The fear is that they would have to pay market prices upfront, which would be too high for them to afford without borrowing additional money from informal sources (read moneylenders) at high interest. This issue should be suitably addressed.

 

This aside, some of the potential gains normally expected from DBT have already been realised in the case of fertilisers through other ways. The mandatory neem-coating of the entire urea output, for instance, has more or less eliminated the scope for its diversion for industrial use. The objective of cutting down the consumption of urea to tone down the imbalance in the application of nitrogen, phosphorus and potash has partly been achieved by reducing the size of urea bag from 50 kg to 45 kg. Farmers generally measure the fertiliser doses by the number of bags per acre. Among the other fertiliser sector reforms that are still pending, the most critical is to decontrol urea and bring it under the ambit of the nutrient-based subsidy system applicable to most other fertiliser. That will not only ensure balanced use of fertiliser, but also help slash subsidy outgo on this most-consumed fertiliser product.