Rationalisation: Urea subsidy to be capped, its release more targeted

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September 25, 2019 3:30 AM

Currently, the government releases subsidy amount to firms periodically based on Aadhaar-authenticated sales through point of sale (PoS) machines, which were rolled out in April 1, 2018 as the first phase of DBT.

Urea subsidy in the period, however, increased from Rs 24,337 crore to Rs 53,629 crore.Urea subsidy in the period, however, increased from Rs 24,337 crore to Rs 53,629 crore.

In a move that would help curb the relentless rise in its revenue expenditure and find more resources for capex, the Centre has drawn up a plan to ease the controls on the retail prices of the most widely used fertiliser — urea — and make the release of the ever-rising subsidy on it far more targeted than now.

According to official sources, after considering a host of options for direct transfer (DBT) of urea subsidy to the beneficiary farmers’ bank accounts, the department of fertilisers (DoF) has chosen a model where the farmer will pay the market price at the time of purchase of urea and promptly receive the subsidy amount in his/her Aadhaar-linked bank account.

A formal proposal will be made by the department soon to start pilot project in one state to be identified.

After reining in the subsidy outgo on domestic cooking gas via DBT and trying the model for PDS for food as well, the Centre has been looking for a pragmatic scheme that would at once be politically palatable and serve the
purpose of reining in the subsidy growth.

“Subsidy will be fixed per kg for urea. However, a decision has to be taken whether to allow the market prices to be freed completely or allow them to be within in a band,” an official told FE on condition of anonymity.

He added a ceiling might be put on the subsidised fertiliser a farmer could get for each hectare of land so that the alleged overuse of the nitrogenous fertiliser could be curbed.

Subsidy component was fixed for nutrient-based subsidies (P&K) effective April 2010 and this resulted in subsidies on P&K decline from Rs 41,500 crore in FY11 to an estimated Rs 26,367 crore in FY20.

Urea subsidy in the period, however, increased from Rs 24,337 crore to Rs 53,629 crore. While the production cost of gas-based urea is about Rs 900 per 45-kg bag, the farmers get it for Rs 242 — a discount of over 70%.

Currently, the government releases subsidy amount to firms periodically based on Aadhaar-authenticated sales through point of sale (PoS) machines, which were rolled out in April 1, 2018 as the first phase of DBT.

According to Nabard, there is a general tendency on the part of farmers to resort to overuse of fertilisers and pesticides expecting higher yields, leading to unnecessary rise in input costs. To address this problem, the Centre has started issuing soil health cards so that the farmer can balance the application of micro-nutrients, other fertilisers and pesticides. Unlike domestic cooking

gas (LPG-Pahal) and food, where beneficiaries are defined and cash/kind given directly to the beneficiary, fertiliser subsidy is universal in nature and subsidy amount is paid to the manufacturer.

The PoS system helped the Centre save Rs 10,000 crore in fertiliser subsidy by plugging leakages in FY19, official data show. Fertiliser subsidy is estimated to be Rs 79,996 crore (Rs 53,629 crore for urea and Rs 26,367 crore for nutrient-based subsidy) for FY20. Implementation of PoS has led to an increase in the revenue of fertiliser companies by 12% in FY18 and 22% in FY19 as all the sales were officially recorded and streamlined via the PoS machines, curbing pilferage and misuse. These companies had reported an 11% decline in sales in FY17.

Harnessing the power of Jan Dhan, Aadhaar and Mobile (JAM), DBT in LPG-Pahal has led to saving of Rs 59,599 crore between FY15 and FY19 while DBT in food has saved the exchequer Rs 47,633 crore (largely DBT-in-kind as cash transfers are not fully rolled out due to the National Food Security Act and concerns that it could lead to deprivation) during the period.

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