Considering the perceptible impact of DBT for fertiliser subsidies on stakeholders, it is imperative that the Government comes out with a roadmap so that the beneficiaries get adequate time to prepare for the transition
Speaking at the inaugural session of the ninth Global Agriculture Leadership Summit on September 8, in New Delhi, Union Minister for Chemicals and Fertilisers, Ananth Kumar said that the Government was committed to implement direct benefit transfer (DBT) for fertiliser subsidy to farmers. But he failed to give a time-frame.
Drawing a parallel with liquefied petroleum gas where DBT has already been successfully implemented, he opined that things are much more complex in the fertiliser case. He said the Government would take a call on this only after the successful conduct of trial runs, which are currently under way in certain districts of the country.
This is fine, but every stakeholder — manufacturer, importer, dealer, farmer etc — has the right to know how they will be affected and what is expected out of DBT. The Government should come out with a blueprint in this regard. Meanwhile, here are some basic points to mind:
At present, fertiliser subsidy is routed through manufacturing units. Manufacturers sell fertilisers at a low price and claim excess of cost of supply over it as subsidy from the Government, which varies from unit to unit. Under DBT, manufacturers will not get subsidy. They will have to sell fertilisers at cost-based or market determined price, whichever is lower. While low-cost units will benefit, high-cost units may lose.
In the case of importers, designated agencies like MMTC, STC etc, import urea under instructions from the Union Government. They issue it to selling agencies — mostly domestic manufacturers — at maximum retail price minus handling and distribution cost. The excess of cost and freight landed price over it is reimbursed to them as subsidy. Under DBT, importers will have to sell at market price and will be under pressure to source imported urea at competitive price. Assured margins will be a thing of past.
As for the dealers, they buy fertilisers from manufacturers at maximum retail price (minus dealer’s margin) which is heavily subsidised. In case of urea, this is `5,360 per tonne which can range from one-fourth to half of cost of supply (depending on source of supply). Under DBT scheme, dealers will have to pay at least two to three times more. This will require greater deployment of working capital. If banks do not lend more, many of them will be forced to leave this business, This will in turn affect sales.
Lastly, farmers in the current scenario, shell out a small amount ,say, `5,360 per tonne on urea, as a huge subsidy element is built in the maximum retail price. Under DBT, they will have to pay full market-based price to the dealer even as the Government credits subsidy to their bank account. On a net basis, though the farmer will continue to spend the same amount from his pocket, he could face cash flow problems.
A vast majority of our farmers are poor. They do not have enough cash to pay big amounts at the time of purchase. The Government will have to ensure that subsidy reaches their bank account well in advance. Alternatively, it will have to ask banks to give extra credit to farmers (with a clear proviso that it will bear the interest cost) and later adjust against subsidy receipt.
The Union Government, the State Governments and the banks must together put in place foolproof arrangements to ensure the farmers have requisite cash in their hand.
The Government’s role at the moment is confined mostly to control and manage production, import, movement, distribution and pricing etc. Under DBT, it will have to leave all this to market forces. Instead, it should focus on ‘timely’ reach of ‘adequate’ amount of subsidy to all farmers. Apart from requisite infrastructure and administrative arrangements, it will have to make adequate allocation in the Union Budget.
Unlike existing arrangements of routing subsidy through manufacturers, the Government gets away with huge ‘under-provision’, as fertiliser companies somehow manage their cash flows (including cross-funding from other businesses in case of diversified conglomerates). But, under DBT, where direct cash transfer to farmers is involved, it must shun this practice, lest it has to face the wrath of farmers due to consequential delay in payments.
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 fertiliser purchase made by them. The Government must decide whether all will continue to get what they are getting now, or it would like to restrict subsidy only to poor farmers and those in rain-fed areas.
It will also need to be extra cautious in dealing with those farmers who do not own land but do farming. 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 the subsidy reaches them.
(The writer is a public policy analyst)
http://www.dailypioneer.com/columnists/oped/making-dbt-fertiliser-a-reality.html