In what had lead to weeding out of fake consumers claiming cooking gas subsidies, the government should implement a similar mechanism of crediting sops directly to farmers’ bank account for fertilisers, said the Economic Survey on Friday . In addition, there should be decanalising of imports, which is currently allowed to just three firms, and setting up of urea manufacturing plants in low-energy priced countries such as Iran could help to bring down the subsidy bill.
“Reform of the fertiliser sector would not only help farmers and improve efficiency in the sector. Decanalising imports will ensure timely availability of fertilisers, and universal Direct Benefit Transfer (DBT) to farmers based on biometric identification with physical offtake reduce diversion of urea,” said the report, written by economic adviser Arvind Subramanian.
The Economic Survey said that given the sensitivity of urea, the DBT could be started for diammonium phosphate (DAP), and muriate of potash (MOP) to create confidence that DBT is workable in fertiliser.
“The DBT scheme is closely linked to financial inclusion. It would certainly ensure that leakages are curbed because diverting funds from an individual bank account is tough. For fertiliser subsidy to reach bank accounts, government would have to ensure that every big and small farmer has a bank account and mapped correctly. However, the banks also should have the infrastructure network to service all towns and villages. Second, farmers should be imparted knowledge of handling the bank accounts — it’s passwords, and other security related issues,” said Abizer Diwanji, national leader for financial services at EY.
It is estimated that about 51% of farmers buy urea at above-MRP. The massive diversion of subsidised urea is consumed in chemical industry, explosives, automobile systems, laboratories, medical uses, flavour enhancing additive in cigarettes and others. Black market effects are aggravated by a further regulation—canalisation, pointed out the survey, adding that three firms are allowed to import urea into
India, and the canalisers are also instructed when to import, what quantities to import, and in which districts to sell their goods.
The government budgeted Rs 73,000 crore for fertiliser subsidies in 2015-16. Nearly 70% of this amount was allocated to urea, the most commonly used fertiliser, making it the largest subsidy after food.
The subsidised urea suffers from three types of leakages — 24% is spent on inefficient urea producers; 41% is diverted to non-agricultural uses and abroad; and the remaining, 24% is consumed by larger —presumably richer farmers. These leakages imply that only 35% — about —R17,500 crore of the total urea subsidy of —Rs 50,300 crore — reaches the intended beneficiaries, small and marginal farmers.