A big reason for why govt is not too keen on genuine DBT is that it can no longer pay its dues of around Rs 60,000 cr.
It is not clear whether the government plans to go back on its ultimate plan to use a genuine direct benefit transfer (DBT) to deliver fertiliser subsidies, but it would be unfortunate if it does not implement a full-fledged DBT. Right now, the government has a quasi-DBT that involves the beneficiary farmer identifying himself using an Aadhaar biometric while buying the subsidised fertiliser, after which the government makes the payment of the subsidy to the fertiliser company. This helps ensure the subsidy is not being siphoned off by another beneficiary, but it doesn’t help the larger issue of farmers overusing urea many times over as there is a huge subsidy on it. Ideally, in a full-fledged DBT, farmers would be paid the per unit subsidy in cash, and the fertiliser would then be sold at the market price. Since this would mean a dramatic increase in urea prices, farmers would buy only the amount of urea they really need and more of other fertilisers; since farmers will get the subsidy in cash, there will be no extra cash outgo for them. Interestingly, while most believe farmers benefit tremendously from the huge urea (N) subsidy—per unit subsidies on phosphatic (P) and potassic (K) fertilisers are much less—the reality is that, with Indian urea fertilisers costing a lot more than the global costs, the bulk of the urea subsidy is actually a subsidy to Indian fertiliser firms and not to farmers.
The unacceptably large urea subsidy, according to a recent Icrier paper by Ashok Gulati and Pritha Banerjee, has ensured that against the ideal N:P:K ratio of 4:2:1, the average is 6.1:2.5:1, and it is as much as 25.8:5.8:1 in states like Punjab. This has resulted in a sharp fall in productivity due to the nutrient balance in the soil worsening. While farmers got 13.4 kg of grain for each kilogram of fertiliser used in 1970, this fell to just 3.7 kg in 2005; it is even lower today. Apart from this, Gulati and Banerjee show (bit.ly/2Tk2mNz), the excess nitrogen from urea leaching into the soil, and the deficiency of sulphur, iron, zinc, and manganese—caused by use of too little non-urea fertilisers—is responsible for stunting and, due to nitrate contamination of water, even blue babies.
Ideally, there is no reason why the government should not implement a full-fledged DBT for fertilisers given the benefits from doing so. One possible problem, as Uttam Gupta has argued in this newspaper (bit.ly/3a6RLLO), could relate to the government being cash-strapped. In FY20, Gupta estimates, the government could end up owing the industry around Rs 60,000 crore. While it is possible to accumulate such dues in the current system where fertiliser firms sell the NPK at a subsidised rate to farmers, in a full-fledged DBT—where farmers pay the full fertiliser price—the government will have to make this payment upfront to the farmers. If farmers don’t get the subsidy before they buy the fertiliser, they will never buy it as doing so will mean a big dent in their budgets. It would be a pity if the government being cash-strapped is the reason for putting off a major reform whose impact, going far beyond pure economics, has major health ramifications as well.