Early this year, the finance ministry and NITI Aayog mooted a road-map for direct benefit transfer [DBT] of fertilizer subsidy and alluded to club this with assistance @ Rs 6000/- per annum being given under PM-KISAN and give the total amount as quasi–universal basic income transfer. To begin with, this will be run on trial basis in select districts to cover small and marginal farmers only. However, full scale implementation pan-India will be possible in 2-3 years.
The finance ministry/NITI Aayog were to put up the proposal to the new government for latter’s approval. But, there was no announcement in the budget for 2019-20 presented by the finance minister, Nirmala Sitharaman on July 5, 2019.
Now, a panel under Niti Aayog member Ramesh Chand has recommended DBT of fertilizer subsidy with the stated objective to ‘dis-incentivize farmers from excessive use and ensure delivery of subsidies to the end-user’. The panel also believes that ‘this will be good for health of farmland and outgo on subsidy will also reduce due to less usage of fertilizers’.
To be used for buying soil nutrients [a more nuanced and scientific nomenclature for fertilizers], the panel has recommended two options for fixing the amount of direct cash transfer viz. (i) on per acre/hectare basis or (ii) a lump-sum amount for all identified beneficiaries on the lines of PM – KISAN.
For the purpose of making payments, the government will open virtual accounts and these can be operated once the beneficiary enters a security code in the system for buying fertilizer. Alternatively, an e-wallet will be created in the bank account of every beneficiary and the amount transferred for fertilizer subsidy will be kept in this can be used only for buying fertilizer.
The panel talks of rolling out the scheme within 3-4 months after approval by the government although it has listed out some challenges such as authenticating size of land holdings, difficulties in having uniform norms for irrigated and non-irrigated areas etc. Besides, there may be lack of data on all farmers as some states have not joined the PM-KISAN scheme.
DBT for fertilizer has been on the radar of policy makers for close to three decades. In July 1991, vowing to eliminate fertilizer subsidy in three years – under pressure from the International Monetary Fund [IMF] and World Bank – the government had increased prices of all fertilizers by 40%. However, fearing political backlash, the hike was restricted to 30% with a proviso that small and marginal farmers will be exempted from it. The centre gave money [corresponding to 30%] to the states for direct distribution to the beneficiaries.
In reply to a question in the Parliament the then government had stated that a meager 3.5% of the small and marginal farmers received the benefit intended under the direct cash transfer scheme. In the succeeding year 1992-93, the exemption was quietly withdrawn as no provision was made in the budget.
In august 1992, in sync with its commitment to eliminate subsidy, the government removed pricing and distribution controls on phosphate and potash fertilizers and abolished subsidy. However, in just about 5 weeks, subsidy on these fertilizers was resurrected under a new incarnation called ad hoc concession. This was meant to be given directly to the farmers by states. Yet again, this did not happen and subsidy/ad hoc concession continued to be extended via manufacturers. Meanwhile, urea has remained under pricing and distribution controls all through with subsidy being extended through manufacturers.
In 2000, the Expenditure Reforms Commission [ERC] had recommended a road-map beginning 2001-02 for removal of control and subsidy on fertilizers. From 2005-06 onward, the government was expected give subsidy directly to small and marginal farmers by distributing coupons en-cashable at dealer shop. That recommendation gathered dust in official records.
In Budget for 2012-13, the then government had announced linking subsidy payment to manufacturers to the sale of fertilizers to farmers by retailers. Pilot projects in 10 districts spread over nine states were to be run; after successful implementation, DBT to farmers was to be launched in these districts from April 1, 2013. All-India launch was contemplated from April, 2014. The plan did not move beyond the drawing board.
In 2016/17, Modi – government launched pilot projects for linking subsidy payment to manufacturers to sale of fertilizers to farmers by retailers in 18 districts spread over 12 states. From April, 2018, it was launched pan-India. Under the scheme, manufacturers receive 100% of the subsidy after fertilizer is delivered to the farmer and his identity viz. Aadhaar is captured on electronic PoS [point of sale] machine at dealer’s shop. Though termed as DBT, in reality, it is not as subsidy continues to be routed through manufacturers.
So, for close to three decades, successive regimes talked loud on DBT of fertilizer subsidy but none walked the talk. Even when this was implemented, it was withdrawn in no time [1991/1992]. In this backdrop, the recommendation of Ramesh Chand committee does not inspire confidence.
It took two years for Modi – government to affect a minor change in the manner of disbursing subsidy from earlier 85%/95% for non-urea fertilizers/urea on receipt of material in the district and balance 15%/5% on confirmation of sale by the state government to 100% on sale by the dealer to the farmer. One can imagine the time it will take to transit to a system of directly putting the subsidy in the account of farmer which will involve taking concurrent decisions such as abolishing the extant New Pricing Scheme [NPS] for urea and Nutrient Based Scheme [NBS] for fertilizers other than urea and limiting the subsidy only to poor farmers having far reaching ramifications.
Under NPS, the subsidy being the excess of production cost over the controlled maximum retail price [MRP] varies from unit to unit depending on the cost. It gives protection to high cost units – a number of these being under public sector such as Fertilizer Corporation of India [FCI] etc. Under DBT, this protection will automatically go away threatening their survival. The government will have to think of mechanisms to ensure their viability sans NPS.
Likewise, it will have to assess the implications of withdrawing subsidy support to large/rich farmers inevitable under DBT [surely, it can’t be the intent of our policy makers to continue subsidizing them which will defeat one of key objectives of reforms namely targeting subsidy to poor only]. This is all the more when elections are held round the clock and withdrawal of subsidies being availed by even undeserving persons for long could cost the ruling dispensation dearly.
Under DBT, the government can’t afford inadequate budget allocation as this will result in delayed or even non-payment of subsidy to farmers will literally hemorrhage them.
Apart from the above, even the challenges listed by the panel are no less daunting. A lump-sum amount for all identified beneficiaries will militate against farmers using more nutrients per hectare. On the other hand, subsidy on per hectare basis without any cap on acreage will push outgo to unsustainable level. Getting data on all farmers especially those who don’t own land is a herculean task. Further, linking payments to actual fertilizer purchase is an avoidable restriction. For instance, why should a farmer who latches on to zero budget farming [avoiding fertilizers] be deprived of subsidy.
These issues require thorough deliberations, consultation with all stakeholders and creation of a conducive ground for a smooth transition to DBT regime. The government should address them in a focused manner instead of the current flip-flop.