The government has come a long way on fertiliser-subsidy reforms. Linking fertiliser sales to farmers’ Aadhaar—fertiliser companies are to be paid the subsidy amount on the basis of quantity sold to an Aadhaar-authenticated farmer—and the neem-coated urea scheme have taken care of, respectively, ghost beneficiaries and diversion of subsidised urea for non-farm purposes. But, the last mile of reforms—de-linking the subsidy from industry and adopting a targeted, direct transfer to farmers—needs to be walked. To that end, the NITI Aayog, along with the finance ministry, are working on a way to do this is a significant step forward.
Though fertiliser subsidies fell from a peak of Rs 76,600 crore (FY09) to Rs 66,441 crore in FY18, it climbed back to Rs 70,075 crore in FY19, and the government expects to incur a bill of Rs 75,000 crore this fiscal. Meanwhile, it owes the fertiliser industry, as per The Economic Times, around Rs 30,000 crore in arrears. The key reason why the fertiliser subsidy burden has increased over the years is that the subsidy is paid to the seller, who makes urea available to the farmer at a fraction of the market price. This has meant decades of indiscriminate use by farmers, at the cost of soil health and water pollution. Aadhaar-authentication is no cure, since that doesn’t curb overuse by genuine beneficiaries. Besides, subsidised urea has spawned a grey market in which the fertiliser is smuggled into neighbouring countries, and genuine, Aadhaar-authenticated beneficiaries are likely a part of this. Agriculture economist at Icrier, Ashok Gulati, says in Supporting Indian Farms the Smart Way, a 2018 publication that he as edited along with Marco Ferroni and Yuan Zhou of Syngenta Foundation, that every rupee spent by the government on fertiliser subsidies adds just 88 paise to the agri-GDP while roads add Rs 1.10 and agri R&D adds a whopping Rs 11.2. So, there is indeed a strong case for rationalising the subsidy, and making farmers the target of the subsidy is, indeed, a smart way to do this.
Implementing a direct transfer, though, will have its own set of challenges since the quantity of fertiliser required will depend on the soil quality and crop. Matched against Soil Health Card and agricultural land ownership data—while, as per the 2015-16 Agriculture Census, there are 14.6 crore operational holdings in the country, over 19 crore Soil Health Cards have been printed—regional fertiliser requirements can be estimated. The trick will be to arrive at a subsidy formula. The Shanta Kumar Committee on agricultural reforms, in 2015, had prescribed an uniform Rs 7,000/hectare direct cash transfer in place of fertiliser subsidies. The government needs to carefully examine if such a standard remission will work or the amount needs to be tweaked for region-specific and crop-specific fertiliser requirement.