DBT of fertilizers subsidy: The last mile to walk

Published: August 1, 2019 1:53 PM

The DBT approach is commendable as it enables to track movement at the lowest formation of the administrative set-up and ensures the availability of fertilises to farmers.

DBT, fertiliser subsidySale of all subsidised fertilizers to farmers/buyers is now made through point of sale (PoS) devices installed at each retailer shop.

By Ashok Vishandass

Fertilizers are crucial productivity augmenting inputs. To meet the challenge of rising demand for food, feed, and fibre with limited land and water resources, it is imperative to augment land productivity and one way to do this is to make fertilisers easily accessible to farmers. With this end in view, fertiliser sector in the country is subsidised. Against an expenditure of Rs 13,800 crore in 2000-01 on account of fertilisers subsidy, an amount of over Rs 73,446 crore was spent in 2018-19 and a provision of Rs 1,02,872 crore in B.E. 2019-20 (including Rs 22,876 crore subsidy hiked on non-urea fertilisers on 31.07.2019). To improve efficiency and cost-effectiveness of the subsidy, the government has introduced the system of direct benefit transfer for fertiliser subsidy payments under which 100% subsidy on various fertiliser grades is released to fertiliser companies on the basis of actual sales made by the retailers to the beneficiaries. Sale of all subsidised fertilizers to farmers/buyers is now made through point of sale (PoS) devices installed at each retailer shop. Aadhaar-enabled Fertiliser Distribution system (AeFDS) was introduced on March 28, 2016 in 16 districts (three additional districts were included in the pilot phase on January 27, 2017) across India. Subsequently, the scheme was expanded to all states from March 1, 2018. Pan India rollout of DBT (Phase-I) has been completed by the department of fertilizers by March 2018.

Salient features of DBT include (i) the farmers/beneficiaries will continue to receive Urea at statutory subsidised prices and P&K fertilizers at subsidised prices in the market, (ii) the fertiliser companies which used to receive subsidy on receipt of fertilisers at the district level, now get subsidy after sale to farmers/beneficiaries by the retailers through PoS machines upon biometric authentication, (iii) the farmer or buyer’s identity is authenticated either through biometric Aaaar-based Unique Identification Number or voter ID card or Kisan Credit Card, (iv) all the fertiliser sales to the beneficiary are captured through the point of sale (PoS) machines installed at the retailer’s end and all transactions are captured online in the Integrated Fertilizer Management System (iFMS) on real time basis. Apart from this, the department of fertilizers has taken an important step to promote use of 45 kg bag w.e.f. March 1, 2018. Given that a large proportion of farmers use urea by counting number of bags, this has some correcting effect on the N,P,K imbalance at all-India level.

The DBT approach is commendable as it enables to track movement at the lowest formation of the administrative set-up and ensures the availability of fertilises to farmers. However, this version of DBT does not help much in terms of balanced use of three components of fertilisers nor it addresses the issue of equity among farmers. Before suggesting solutions to these two issues, let us trace the cause and effect of the imbalanced use of fertilisers.

Crops require right mix of three nutrients viz. nitrogen, phosphorus, and potassium or NPK (N helps in plant growth and development, P not only accelerates blooming and the growth of roots but also helps plants to withstand stress and K helps the process of photosynthesis and is essential to plant growth). Imbalanced use of N, P and K leads to the loss of fertility of the soil over a period of time, which affects efficiency of fertilizer use and crop productivity. Urea, the only controlled fertilizer, is sold at statutory notified uniform sale price and decontrolled Phosphatic and Potassic fertilizers are sold at indicative maximum retail prices (MRPs). While the prices of urea are fixed and subsidy levels float, it is the other way round in case of P and K. The current price of urea at Rs 5,360/tonne is low (due to subsidy) in relation to about Rs 28,440 per tonne of DAP and Rs 18,980 per tonne of MoP. Favourable pricing policy of urea in comparison to those of other two nutrients has driven farmers to over use urea. For instance, as against recommended doses of N:P:K in the ratio of 4:2:1, empirically observed consumption ratio was skewed at 6.1:2.5:1 in 2017-18. Though it has improved from 8:2.7:1 that prevailed in 2013-14, it does not necessarily imply that usage of urea in agriculture has come down. Further, the hike in the subsidy on non-urea fertilizers on 31 July, 2019 to make available farm nutrients at affordable prices is a welcome step, albeit a ‘baby step’, it is unlikely to significantly correct imbalanced use of fertilizers. Measures like neem coating of urea has reduced its diversion to non-agriculture purposes which makes it appear as if its actual consumption in the sector has declined.

Cash transfer directly to the farmer in lieu of fertilizers at subsidised prices will benefit them as they would be empowered to choose the fertilizer combination best suited to their soil texture without the influence of the distorted price relatives of NPK. Given the gross cropped area (GCA) of 195.1 million hectares and that the Government has provided Rs 1,02,872 crores in B.E. 2019-20 (including Rs 22,876 crores approved on 31.07.2019) on account of fertilizers subsidy, average subsidy works out to Rs.5233/ha. If cash amount @ Rs. 5250/ha. is transferred in lieu of fertilizers subsidy to semi-medium farmers (middle group) and to others in a graded system, in inverse order of their land resources, it would have a total financial implication of Rs 1,05,321 crores (Table below).

The above model of DBT would result in three important advantages. Firstly, it will save domestic resource costs (DRCs) in production of urea in excess of ‘real’ demand as farmers would not over use urea. Pulses, for instance, being self-nitrogen fixing crops, do not require use of urea. At the same time, soil health will improve and productivity levels will augment considerably. Secondly, it will address the issue of ‘inequity’ as marginal farmers need more assistance compared to other farmers. Thirdly, the total bill on account of fertilizers subsidy can be contained, at least for next few years. It will be a ‘win win’ situation if the Government walks the last mile in fully implementing DBT in case of fertilizers subsidy.

Ashok Vishandass is Professor (Applied Economics), Indian Institute of Public Administration and former Chairman (CACP), New Delhi. Views expressed are personal

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