Inaugurating the 9th Global Agriculture Leadership Summit on September 8, 2016 in New Delhi, the union minister for chemicals and fertilizers, Ananth Kumar said that the government is committed to implement direct benefit transfer [DBT] of subsidy on fertilizers but avoided giving a time frame.
Drawing a parallel with LPG [liquefied petroleum gas] where DBT has already been successfully implemented, he opined that things are much more complex here and the government will take a call on this only after successful conduct of trial runs which are currently under way in certain districts of the country.
All that is fine but every stakeholder viz., farmer, manufacturer, importer, distributor/dealer etc has a right to know as to how he/she will be affected under DBT. From government’s own perspective, it has to be clear as to what steps need to be taken to prepare the country for its successful launch.
As such, there is paramount need for the government to come out with a ‘discussion paper’ bringing out the broad contours of DBT and its take on what role various stakeholders are expected to perform. This will give them a sense of direction and get ready to adjust to this trans-formative change.
Prima facie, here is a broad idea of likely impact on each of the players and the challenges they are likely to face.
Manufacturers: At present, fertilizer subsidy is routed through them. They sell fertilizers at a low price and claim excess of cost of supply over it as subsidy from Government of India [GOI] which varies from unit to unit. Under DBT, they won’t get subsidy and therefore will sell at cost-based or market determined price whichever is lower. Low-cost units will benefit while, high cost units could lose.
Under existing dispensation, manufacturers have to wait endlessly to get their subsidy dues. This is due to inadequate provision in budget vis-à-vis requirements [courtesy, compulsions of reining in fiscal deficit]. They also have to toil hard to get compensation for increase in cost due to a variety of factors such as taxes and duties, input price increase etc. These problems will go away under DBT.
Importers: Currently, designated agencies viz., MMTC, STC etc import urea under instructions from GOI. They issue it to selling agencies – mostly domestic manufacturers – at MRP [maximum retail price] minus handling & distribution cost. The excess of C&F landed price over it is reimbursed to them as subsidy. Under DBT, they will have to sell at market price and will be under pressure to source imported urea at competitive price.
Dealers: At present, they buy fertilizers from manufacturers/suppliers at at MRP [minus dealer’s margin] which is heavily subsidized. In case of urea, this is Rs 5360 per ton which can range from ¼ to ½ of cost of supply [depending on unit supplying the material]. When, DBT comes in to play, they will have to pay at least 2-3 times more. This will require greater deployment of working capital; hence a lot to worry.
Farmers: Currently, they shell out a small amount say, Rs 5360 per ton on urea as the huge subsidy element is built in to MRP. Under DBT, the government will credit subsidy to their bank account but they will have to pay 2-3 times more to the dealer. Theoretically, the farmer should remain un-affected as far as net payment from his pocket is concerned. But, he can face problem of cash flow.
A vast majority of our farmers are poor. They do not have enough cash to be able to pay much higher price at the time of purchase and then, wait for the subsidy money to reach their bank account. To save them from this cash squeeze, it is necessary that they get the subsidy in advance before they go to make purchase. The government will either have to agree to this or ask banks to give extra credit to farmers [with a clear proviso that it will bear the interest cost] and later adjust this against subsidy on receipt.
The GOI, state governments and banks together must put in place fool proof arrangements to ensure that millions of farmers spread in every nook and corner of the country have requisite cash in their hand to enable them buy fertilizers at full market/cost-based price. Even a slight slip on this front can result in a disastrous scenario viz., drastic reduction in fertilizer use, food production and farmers income.
Therefore, all those connected with implementation of DBT will have to work on the principle of zero tolerance for any slippage/mishap in regard to ‘timely’ and ‘adequate’ availability of credit or subsidy
Government: At present, its role is confined mostly to controlling and managing production, import, movement, distribution and pricing etc. Under DBT dispensation, it will have to necessarily leave all this to market forces. Instead, it will have to focus on ‘timely’ reach of ‘adequate’ amount of subsidy to all the beneficiaries. Apart from making required infrastructure and administrative arrangements, it will have to make adequate allocation in the budget.
Unlike the existing arrangements of routing subsidy through manufacturers whereby it makes huge ‘under-provision’ and gets away with it as fertilizer companies somehow manage their operations [including cross-funding from other businesses in case of conglomerates like Tata and Birla], under DBT where direct cash transfer to farmers is involved, continuing this practice will have catastrophic consequences for the farmers and Indian agriculture.
Currently, all farmers irrespective of their farm size, rich or poor, whether operating under irrigated or rain-fed conditions get subsidy at the same rate and for full quantum of fertilizer purchase made by them. The government has to decide whether all of them will continue to get what they are getting now or there is scope for restricting it only to say, poor farmers and those in rain-fed areas.
It will need to be extra cautious in dealing with those farmers who do not own land but doing farming [call them tenant farmers or share cropper]. A correct identification, making a repository of all such farmers and opening their bank accounts is a must to ensure that they are well within the ambit of DBT and subsidy reaches them.
Considering the many imponderables and perceptible impact of DBT on each of the stakeholders, it is imperative that the government comes out with a road-map now so that they get adequate time to prepare for the transition. This should also clear the air on how long control on selling price and producers prices will continue.
In the absence of such a road-map, merely saying that DBT will be implemented [as fertilizer minister put it] makes little sense. Is government listening?