In a move that will completely deregulate the domestic urea industry, the government is planning to put in place a new mechanism wherein the subsidy will directly go to farmers instead of the current practice of routing it through manufacturers. The department of fertilisers (DoF) is discussing the issue with department of land resources under the administrative control of ministry of rural development.

The agency is preparing computerised land records that will, in turn, be used as a database for the purpose, sources in DoF said.

The ministry is also looking at another option of tapping about 5 crore accounts under National Rural Employment Guarantee Programme (NREGA) for giving out direct subsidy, as of these 5 crore NREGA accounts, about 2.5 to 3 crore are held by small and marginal farmers.

In fact, farmers can be identified through NREGA job cards as well. On the basis of these cards, coupons will be issued. Overtime, as tradability of these coupons emerges or is allowed, the fertiliser subsidy will automatically be reduced to an income subsidy, which is entirely free from distortions, a senior official in DoF said.

Confirming the move, fertiliser minister, Ram Vilas Paswan said, ?We are in touch with the rural development ministry as the move would benefit more and more farmers and curb the smuggling of subsidised farm inputs and reduce the government?s subsidy bill substantially which is expected to rise to Rs 100,000 crore in the current fiscal from Rs 40,338 crore a year ago.? With the increase in consumption, the fertiliser subsidy bill is likely to shoot up in the next fiscal, he said adding that the initiative will be launched as a pilot project in three districts of Punjab, Haryana and Uttar Pradesh.

As soon as farmers with small and marginal land holdings will come to know that the fertiliser subsidy will reach their account, they, themselves will come forward and welcome the development. And eventually, the network will be widened, he added. If everything goes according to this well-chalked out plan, the scheme will be operational from 2009, the year when the country will have plenty of gas available.

A report in this regard will be submitted to the finance ministry in a month?s time. The move, it is learnt, follows after a tri-partite meeting with official of the fertiliser ministry, industry leaders and Prime Minister Manmohan Singh who was concerned over the burgeoning subsidy bill and had asked the industry to suggest a formula to check the growing subsidy burden that resulted into erosion of viability of the industry and adversely impacted the social obligations of the government. Industry sources say, the move is welcomed as the market forces will play and it will generate more competition as the price-based subsidisation of urea has no logic.

Similarly, there will be no issue with regard to feedstock pricing in a deregulated environment.

Fertile ground

• Department of land resources is preparing computerised land records that will, in turn, be used as a database for the purpose

• The ministry is also looking at tapping about 5 crore accounts under NREGA for giving out direct subsidy to farmers

• The move is expected to reduce government?s subsidy bill substantially, which is expected to rise to Rs 1,00,000 crore in the current fiscal