Prime minister, Modi is perceived to be a crusader when it comes to plugging leakages from the subsidy distribution pipeline. He has amply demonstrated this in case of LPG [liquefied petroleum gas] wherein, the government implemented direct benefit transfer [DBT] and saved about Rs 15,000 crores annually. But, when it comes to fertilizers, similar initiatives are conspicuous by absence.
During 2015-16, out of an allocation of Rs 73,000 crores on fertilizer subsidy, Rs 50,300 crores was on urea. The subsidy is administered through manufacturers who are directed to sell urea at fixed uniform maximum retail price [MRP] and get reimbursement for excess of their unit- specific production cost over MRP under new pricing scheme [NPS]. Imported urea too is subsidized being excess of landed cost plus handling & distribution over MRP.
According to the Economic Survey [2015-16], 24% of the subsidy is spent on inefficient producers, 41% is diverted to non-agricultural uses including smuggling to neighbouring countries and 24% is consumed by larger – presumably richer farmers. That leaves a tiny 11% going to small and marginal farmers who alone according to the philosophy adumbrated by Modi ad infinitum should be the sole beneficiary of subsidy.
The Survey strongly advocated DBT of fertilizer subsidy to the bank accounts of beneficiaries using the JAM [Jan Dhan–Aadhaar – Mobile] platform the genesis of which to better target subsidies was already laid down in the 2014-15 Survey. So, what has the finance minister, Arun Jaitely offered in the budget for 2016-17? In the speech, he said:-
“We have already introduced a direct benefit transfer (DBT) in LPG. Based on this successful experience, we propose to introduce DBT on pilot basis for fertilizer in few districts in the country with a view to improving quality of service delivery to the farmers.”
In Budget for 2012-13, government had announced tracking movement of fertilisers from retailer to farmers and linking part of subsidy payment to manufacturers to the sale of fertilisers to farmers by retailers. In the mid-year economic analysis of 2012-13, finance ministry came out with a blueprint on modalities for implementing the Budget announcement. Pilot projects in 10 districts spread over nine states were to be launched.
After successful implementation in these 10 districts, cash subsidy was be transferred to farmers [read DBT] in the next phase from April 1, 2013. Concurrently, tracking movement of fertilisers was be rolled out in the whole country. The department of fertilizers [DOF] developed a mobile and web application, a mobile Fertiliser Monitoring System (m-FMS) that provides information on stock, sale and receipt of fertiliser till the last retail point.
As per this road-map, DBT should have been implemented all over India from April, 2014. Now, juxtapose this with Jaitely’s announcement [2 years thereafter] that “the government proposes to introduce DBT and that too on a pilot basis in a few districts.” This is even worse than what happened under erstwhile UPA dispensation. The ship has become rudderless.
While, the Survey stresses the need for identification of beneficiaries, opening of bank accounts, imparting knowledge in handling of accounts and infrastructure net-work to service all villages & towns every nook and corner, no attention is paid to other crucial links in the transition to DBT.
With launch of DBT, the NPS for urea and likewise, the nutrient based scheme [NBS] under which manufacturers of P&K fertilizers are paid subsidy will have to go. This will require manufacturers and other stakeholders such as distributors and retailers etc to be put on advance notice to enable them adjust to the new dispensation of having to sell fertilizers at market-based price.
The infrastructure for supply of gas to all plants needs to be put in place to ensure a level playing field. If, gas pipeline does not reach any plant forcing it to use higher cost feedstock say, naphtha, it won’t survive under DBT regime. The Jagdishpur-Phulpur-Haldia gas pipeline project which is intended to meet gas requirements of a number of plants in eastern UP, Bihar, Jharkhand and West Bengal must be commissioned ahead of D-day.
A number of high cost units are under public sector undertakings [PSUs] viz., FCIL, BVFCL, MFL etc. Some are lying closed for many years while others are making losses. Under market-based pricing, when unit-specific support [currently given under NPS] will no longer be available, losses of loss making units will increase and chances of reviving closed units will become dim. Therefore, government will have to think through ‘special package’ for them to remain viable.
At present, 50% of urea production and 20% of P&K fertilizers are subject to movement and distribution controls. The freight cost is separately reimbursed as subsidy to the manufacturers. Under DBT dispensation, these controls and freight subsidy will have to go even as the cost of moving fertilizers to consumption points has to be reflected in selling price.
Presently, outstanding subsidy dues to manufacturers running in to thousands of crores are a routine affair. They manage by extra borrowings from banks or issue of bonds by government against subsidy receivables. To let this happen under DBT would be disastrous. The government will have to make adequate provision in the budget and ensure that no dues are pending to farmers.
Ironically, none of these aspects has received the attention of policy makers. Far from that, under a new comprehensive urea policy announced in May last year, the government decided to continue extant unit-wise NPS and keep urea MRP frozen for 4 years. It appears that either it is not serious about DBT or it is the proverbial “left hand not knowing what right hand does”.
It is high time PM holds a high level meeting to take a ‘holistic’ view and quickly get in to action mode. Any dilly dallying here will mean that colossal wastage of fertilizer subsidy will continue unabated more than offsetting the laurels brought by success of DBT in LPG.