The government has adopted a multi-pronged strategy to rein in the fertiliser subsidy outgo, which includes augmenting domestic production to cut expensive imports, making it difficult to divert subsidised urea from agricultural to industrial use and checking smuggling of the product to neighbouring Bangladesh and Nepal.
These apart, the government is working on a plan to transfer the subsidy amount directly to farmers’ bank accounts at the time of purchase of the fertiliser form retailers.
Mansukh Lal Mandaviya, minister of state for chemicals and fertilisers, told FE in an interview, "We are thinking of transferring the subsidy amounts directly to farmers’ bank accounts. A model is being evolved on a pilot basis where the farmer will receive the subsidy amount in his/her Aadhaar-linked bank account right at the time or purchase of the fertiliser."
However, he said the government was not planning to put a cap on the quantity of subsidised urea a farmer intends to buy. The authenticity of farmers buying subsidised urea would be double-checked through Aadhaar card and thumb impression.
Under the current system, the government transfers the subsidy amount periodically to fertiliser manufacturers based on Aadhaar-authenticated sales through point of sale machines.
Explaining how the proposed DBT system would work, the minister said, "We will have to take into consideration the fact that farmers may find it difficult to make an upfront payment of market prices and then wait for the subsidy to be released to their bank accounts. The subsidy must reach him just as he procures. The amount will be at once deposited to the farmer’s account and promptly transferred to the retailer."
Once the proposed DBT system is rolled out on a pan-India scale, diversion would be eliminated and the government’s fertiliser subsidy burden would reduce substantially, Mandaviya said. "We will do it (DBT) on a trial basis… we are starting to do that." The minister also said neem coating has ensured that subsidised urea can’t be used for industrial purposes. Also, through the digital tracking system, the movement of the fertiliser can be traced.
According to sources, under the new system, a 'wallet' will be created for each farmer where the subsidy amount will be deposited for release to the manufacturer or trader (in case of imported fertilisers) at the time of actual purchase.
While a paper prepared by the Department of Fertilisers earlier mooted a ceiling on the subsidised fertiliser a farmer could get for each hectare of land, the minister was non-committal on this. He also did not confirm any plan to decontrol retail urea prices by keeping the subsidy component fixed.
The subsidy component was fixed for nutrient-based subsidies (P&K) effective April 2010 and this resulted in subsidies on P&K decline from Rs 41,500 crore in FY11 to an estimated Rs 26,367 crore in FY20. Urea subsidy in the period, however, increased from Rs 24,337 crore to Rs 53,629 crore. While the production cost of gas-based urea is about Rs 900 per 45-kg bag, farmers get it for Rs 242, a discount of over 70%.
India currently produces 240-245 lakh tonne of urea annually and the domestic demand is around 300 lakh tonne, which means imports of 50-60 lakh tonne to bridge the gap. Once five more urea plants being set up in the government sector with an investment of `35,000 crore go on stream, there will be self-sustainability in urea and there will be no necessity to import the fertiliser. While four of these plants are gas-based, the Talcher unit will use coal-bed methane. While trail production has started at the Ramagundam unit, the Gorakhpur plant will be commissioned in two years.
Fertiliser subsidy for FY20 is budgeted at Rs 79,996 crore, while actuals stood at Rs 70,598 crore for the last year.