In its present form, the fertiliser DBT scheme has many loopholes. In the interest of the farmers, the policy needs an overhaul so that they can put subsidy to best use and enhance fertiliser-use efficiency. Will the new Government have the will to do so?
The Ministry of Finance and NITI Aayog are working towards preparing a roadmap to directly transfer fertiliser subsidy to the farmers. The data being used to give Rs 6,000 per year to 120 million small and marginal farmers under the Pradhan Mantri Kisan Samman Nidhi will be used for this purpose. The subsidies on fertilisers along with PM Kisan deposits will serve to give a quasi-universal basic income transfer to the farmers.
The proposal will be put before the new Government for approval. To begin with, this scheme will be run on a trial basis in select districts to cover small and marginal farmers only. However, full-scale implementation will be possible only after two to three years.
This is not a new idea and has been on the Modi Government’s radar for quite some time now. In fact, it was also considered by the erstwhile UPA dispensation. It was during the 2012-13 Budget that the then UPA Government had announced its intention to link subsidy payments to manufacturers to the sale of fertilisers to farmers by retailers.
Pilot projects in 10 districts spread over nine States were to be run. After successful implementation, Direct Benefit Transfer (DBT) to farmers was to be launched in these districts from April 1, 2013. Pan-India launch was contemplated from April 2014. But the plan did not move beyond the drawing board.
It was in 2016-17 that the Modi Government launched pilot projects to link subsidy payment to manufacturers to sale of fertilisers to farmers by retailers in 18 districts spread over 12 States. From April, 2018, it was launched all across the country and covered 31 States and Union Territories.
Under the said scheme, manufacturers receive 100 per cent subsidy after fertiliser is delivered to the farmers and his identity viz, the Aadhaar, is captured on electronic Point of Sale (PoS) machine at the dealer’s shop. Termed as DBT, the nomenclature is misleading as subsidy continues to be routed through the manufacturers.
The producers sell urea at Maximum Retail Price (MRP) controlled by the Centre at a low level and get subsidy reimbursement on unit-specific basis under the New Pricing Scheme (NPS). Manufacturers of non-urea fertilisers are given “uniform” subsidy (on per nutrient basis) under the Nutrient Based Scheme (NBS). However, since payments are adjusted to actual cost data, effectively, even subsidy to them is not uniform. The system protects inefficient and high cost units even as efficient and low cost units get no incentive to improve efficiency and reduce cost.
Besides, since every farmer — rich or poor, small or large — has access to fertilisers at low price, all of them are beneficiaries of the subsidy. Furthermore, the subsidy on urea being higher than on non-urea fertilisers, this leads to excessive urea use, thereby creating an imbalance in the use of fertiliser.
The subsisting architecture has been in place for several decades now even as the change from April 2018 is only with regard to the manner of disbursing subsidy to manufacturers ie, after sale to farmers from earlier receipt of fertilisers in the district. All this will undergo a metaphorical change when real DBT, involving transfer of subsidy to farmers, is introduced.
Under real DBT, manufacturers will sell fertilisers to farmers at full cost/market-based price. The efficient/low cost units will get to increase their profits even as inefficient/high cost units will be forced to down their shutters (this will also attract fresh investment giving a fillip to growth of the industry).
Further, subsidy can be restricted only to poor farmers. Most importantly, farmers will use subsidy for buying fertilisers that their soil/crop needs the most, thereby reducing the imbalance in fertiliser use. But for the transition to be smooth and to ensure that the arrangements are sustainable, a few points need to be kept in mind.
First, unlike the existing dispensation wherein subsidy is open-ended, the amount needs to be capped. The cap may be fixed at subsidy per unit of nutrient (using the formula under NBS) multiplied by nutrient use for a maximum of up to two hectares. To take care of spatial variations, the threshold for nutrient use may vary, depending on the soil type, crop and agro-climatic zone.
Second, considering heavy dependence on import (over two-third in nitrogen, 90 per cent phosphate and 100 per cent in potash), the subsidy per unit nutrient may be revised to reflect the impact of fluctuations in cost of supplying fertilisers.
Third, at present, inadequate budget allocation year-after-year results in unpaid dues to manufacturers, whose margins come under stress.
If short funding continues even under ‘real DBT’, this will literally haemorrhage the farmers. So, the Government will have to make adequate provisions and ensure that they receive subsidy in full and well in advance before the season starts.
Fourth, the Government should launch the scheme all across the country at one go as partial introduction in some parts could trigger diversion of subsidised fertilisers from areas as covered by the subsisting dispensation to those brought under real DBT.
Finally, the most important requirement for the scheme to take off and run successfully thereafter is the political will. For now, this is completely missing as may be seen from the fact that since 2012-13, when a comprehensive action plan was initially mooted by the then UPA regime till date, there has been no movement. Will the new Government crack the whip?
(The writer is a New Delhi-based policy analyst)
