Column : Missing links in the fertiliser subsidy scheme

Jan 11 2013, 01:17 IST
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SummaryDecontrolling urea prices and implementing direct cash transfers will be better than the current monitoring system.

In the Budget for 2012-13, the finance minister had announced tracking the movement of fertilisers from retailer to farmers and linking part of subsidy payment to manufacturers to the sale of fertilisers to farmers by retailers.

Under the extant dispensation, 85-90% of the subsidy amount (fixed amount on DAP and NP/NPK fertilisers and excess of cost over controlled MRP for urea) is paid to manufacturer on ‘receipt of material in district’.

From November 2012, producers are to get subsidy payments only on confirmation of ‘receipt of fertiliser by the retailer’. Actual payments are, however, stuck as the department of fertilisers (DoF) has no money, having exhausted allocated funds. In the mid-year economic analysis of 2012-13, the finance ministry came out with a blueprint on the modalities for implementing the Budget announcement. Pilot projects in 10 districts spread over nine states will be launched.

After successful implementation in these 10 districts, cash subsidy will be transferred to farmers in the next phase from April 1, 2013. Concurrently, tracking the movement of fertilisers will be rolled out in the whole country. The DoF has developed a mobile and web application, a mobile Fertiliser Monitoring System (m-FMS) that provides information about stock position, sale and receipt of fertiliser till the last retail point.

A group headed by Nandan Nilekani had mooted a system by which the government would credit the subsidy to the account of the dealer even as the latter pays the market-based price to the manufacturers and sells to farmers at a subsidised price. Before crediting the subsidy to the dealer’s account, authorities have to ensure that he has delivered the fertilisers to the farmer. The tracking system is meant primarily to facilitate this authentication.

There is a huge time gap between when the dealer buys fertilisers and he receives the subsidy amount. Can he afford to block funds, which can vary from 1.5-2 times the MRP depending on fertiliser type? Who bears the interest cost?

Due to inadequate budget allocation, there are delays in subsidy payments to producers. For instance, during the current year, payments are stuck for five months (the R60,000 crore allocated was exhausted in July 2012).

The fertiliser industry has faced this problem for decades. Outstanding subsidy dues year-after-year have dented its margins. Producers have even lost heavily on ‘fertiliser bonds’ they got in lieu of subsidies. Such problems will dog dealers, too. They do not have the stomach to live with the liquidity

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