Fertiliser subsidy: Government mulls urea decontrol, two direct benefit transfer models

The Financial Express: Prasanta Sahu & Prabhudatta Mishra: August 07, 2019

After reining in the subsidy outgo on domestic cooking gas via direct benefit transfer (DBT) and trying the model for PDS for food as well, the Centre is now set to make fertiliser subsidy disbursal more targetted. Two models of DBT are being considered. Under the first, 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. The other option is the farmer will pay the market price upfront and promptly receive the subsidy amount in his/her Aadhaar-linked bank account.


According to a paper floated by the department of fertilisers for inter-ministerial consultation, a ceiling will be put on the subsidised fertiliser a farmer could get for each hectare of land.

Also, urea price (MRP) will be decontrolled, by keeping the the subsidy component fixed. So, the alleged overuse of the nitrogenous fertiliser could be curbed. Prices of urea at the retail level could fluctuate depending on the input costs, leading to lower subsidy burden for the government and higher realisation by fertiliser manufacturers.

Subsidy component was fixed for nutrient-based subsidies (P&K) effective April 2010 and this resulted in subsidies on P&K decline from `41,500 crore in FY11 to an estimated `26,367 crore in FY20. Urea subsidy in the period, however, increased from `24,337 crore to `53,629 crore. While the production cost of gas-based urea is about `900/45kg bag, the farmers get it for `242, at a discount of over 70%.


One concern is that farmers with small holdings might find it difficult to make upfront full payment conceived under the second model mentioned above. However, it is also argued that this model will promote farmers to reduce overuse of fertilisers and focus on their more efficient use. Currently, the government releases subsidy amount to firms periodically based on Aadhaar-authenticated sales via point of sale (PoS) machines, which was rolled out mandatorily from April 1, 2018, in the first phase of DBT.

According to Nabard, there is a general tendency on the part of farmers to resort to overuse of fertilisers and pesticides expecting higher yields, leading to unnecessary rise in input costs. To address this problem, the Centre has started the initiative of issuing soil health cards so that the farmer can balance the application of micro nutrients, other fertilisers and pesticides.

Unlike domestic cooking gas (LPG-Pahal) and food, where beneficiaries are defined and cash/kind given directly to the beneficiary, fertiliser subsidy is universal in nature and subsidy amount is paid to the manufacturer.

Harnessing the power of Jan Dhan, Aadhaar and Mobile (JAM), DBT in LPG-Pahal has led to saving of `59,599 crore between FY15 and FY19 while DBT in food has cumulatively saved the exchequer `47,633 crore (largely DBT-in-kind as cash transfer not fully rolled out due to the National Food Security Act and concerns that it could lead to deprivation). The PoS system helped the Centre save `10,000 crore in fertiliser subsidy by plugging leakages in FY19, the official data showed. Fertiliser subsidy is estimated to be `79,996 crore (`53,629 crore for urea and `26,367 crore for nutrient-based subsidy) for FY20.


Implementation of PoS has led to an increase in the revenue of fertiliser companies by 12% in FY18 and 22% in FY19 as all the sales were officially recorded and streamlined via the PoS machines, curbing any pilferages and misuse. These companies had reported an 11% decline in sales in FY17.

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