Despite a bumper monsoon after two years of back-to-back droughts, it is odd, as The Indian Express reports, that the sales of fertilisers in the first half of the year fell over 7% over the same period last year. While several reasons have been put forth for this declining usage of fertilisers, including the possibility that the government’s neem-coating of urea has led to less diversion of fertiliser to non-farm users and to greater efficiency of usage, the more plausible one is that farmers are suffering from a shortage of finance after two years of poor crops—also, with a drop in profitability in various crops this year, it is likely farmers are also using less fertilisers per acre of crop.
In which case, especially given how rich farmers manage to corner most of the government’s Rs 175,000-180,000 crore of annual expenditure on agriculture subsidies, the government would do well to look at giving all farmers an annual cash subvention based on the size of land holdings. This would ensure even poorer farmers have enough cash to purchase fertilisers and other inputs, would ensure that farmers grow crops because of relative prices and not because government-agencies are procuring them at a certain price, and would also be compatible with the WTO definition of subsidies—in other words, as this newspaper has been arguing for a long time, replacing leaky and inefficient agriculture subsidies is the first step to bring about an agriculture revolution in the country.
Indeed, the fact that global prices of urea are at a 140-month low—today’s prices of around $190 per metric tonne were last seen around February 2005—also offers the government a golden opportunity to decontrol urea. With prices coming off steadily, this allows the government to, if it wishes, cut the per-unit subsidy up to a certain amount without unduly hurting the farmer—while diesel prices were raised this way and all subsidies removed over a few years, what is being done now for kerosene is to cut subsidies a bit by small fortnightly increases in prices. Since around 15-20% of urea production in the country is still done by fertiliser plants whose costs are above the global average urea price, moving to direct subsidies to farmers will mean they will be able to save more by buying urea at a lower price from either importers or from more efficient local producers.
Decontrolling the fertiliser sector right now will also open up the doors for full-fledged competition and eliminate inefficient producers, something that can only benefit both the farmers and the economy.