Get it right

Direct fertiliser subsidies should be well-targeted

The joint initiative of the finance ministry and the National Institution for Transforming India (NITI) Aayog to devise a system to transfer fertiliser subsidy directly to farmers, instead of routing it through the industry, is a welcome move that can serve several objectives. But the task is far more intricate than the direct benefit transfer (DBT) of some other subsidies, like that on the cooking gas, where a fixed amount is credited to the beneficiaries’ bank accounts. Since fertiliser use varies from farmer to farmer and crop to crop and no specific data is available on these counts, it is hard to work out the entitlement of every cultivator. If, as reported in the media, the ministry is planning to use the database of the landed farmers being created for the PM Kisan income support scheme to deposit Rs 2,000 in their bank accounts thrice a year, it would be well-advised to think again. This data is ill-suited for fertiliser DBT as it is confined at present only to small and marginal landowners, leaving out tenants, sharecroppers and other categories of genuine cultivators. More intriguingly, it entitles the non-farmer absentee landlords also to draw the benefits of the income support scheme.

However, since the new system would have to be approved and implemented only by the new government that assumes office after the on-going general elections, the ministry has sufficient time to work out a better-targeted system. The key issue is to identify the real cultivators, regardless of the land ownership, and put together a non-discriminatory DBT system that is acceptable to all stakeholders in the fertiliser sector. At present, fertilisers are sold to the farmers at reduced rates and the subsidy is paid to the fertiliser companies on the basis of actual sales as verified digitally through special devices installed at all retail outlets. Aadhaar cards are used to authenticate the beneficiary farmers. Though this system also bypasses the state administrations and other intermediaries and is deemed as a kind of DBT, it is beset with a host of snags. These include belated reimbursement of subsidy dues to the industry and the diversion of cheaper (read subsidised) fertilisers to the chemical industry and to neighbouring countries through smuggling.

Crediting the subsidy amount straight into the farmers’ bank accounts, on the other hand, is a better bet in several respects. Apart from plugging the scope for the misuse of subsidised fertilisers for non-agriculture purposes, the DBT would spur balanced application of plant nutrients by discouraging overuse of urea which impairs soil fertility and pollutes environment and groundwater. Moreover, the sale of plant nutrients at market prices, instead of subsidised rates, would introduce the much-needed competition in the fertiliser sector, incentivising manufacturers to improve efficiencies, reduce costs and come out with innovative fertiliser products to meet the farmers’ needs. On the downside, the higher retail prices (with subsidy going to banks) may render fertilisers unaffordable for the cash-stressed small and marginal farmers. Besides, the subsidy amount may also tend to be put to other uses. Thus, the new system for fertiliser DBT would need to aim specifically at promoting efficient, balanced and need-based use of plant nutrients keeping in view the interests of all categories of farmers, whether landowners, tenants or share-croppers. Otherwise, the very purpose of DBT would be defeated.