Fertiliser Subsidy

Why in news?

The Centre is planning to restrict the number of fertiliser bags that individual farmers can buy during any cropping season.

What is fertiliser subsidy?

Farmers buy fertilisers at Maximum Retail Price (MRP) below their normal supply-and-demand-based market rates or what it costs to produce or import them.
The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
However, the Centre pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
Thus, decontrolled fertilisers retail way above urea, while they also attract lower subsidy.

How is the subsidy paid and who gets it?

The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market rates.
Companies, until now, were paid after their bagged material had been dispatched and received at a district’s railhead point or approved godown.
From March 2018, direct benefit transfer (DBT) system was introduced.
In this, subsidy payment to the companies would happen only after actual sales to farmers by retailers.
Each retailer now has a point-of-sale (PoS) machine linked to the e-Urvarak DBT portal of the Department of Fertilisers.

What is the purpose of this portal?

Anybody buying subsidised fertilisers should furnish his/her Aadhaar unique identity or Kisan Credit Card number.
The quantities of the individual fertilisers purchased, the buyer’s name and biometric authentication have to be captured on the PoS device.
Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy.
These are processed on a weekly basis and payments are remitted electronically to its bank account.

What was the new payment system’s purpose?

The main motive is to curb diversion.
This is natural with any under-priced product.
Being super-subsidised, urea is prone to diversion for non-agricultural use apart from being smuggled to Nepal and Bangladesh.
The scope for leakage was more in the earlier system, right from the point of dispatch till the retailer end.
With DBT, pilferage happens only at the retailer level, as there is no subsidy payment till sales are made through POS machines.

What is the next step being proposed?

At present, the Centre is following a no denial policy.
Anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines.
That obviously allows for bulk buying by unintended beneficiaries, who are not genuine or deserving farmers.
There is a limit of 100 bags that an individual can purchase at one time.
But, it does not stop anyone from buying any number of times.
One plan under discussion is to cap the total number of subsidised bags that any person can buy during an entire kharif or rabi cropping season.
This, it is expected, would end retail-level diversion and purchases by large buyers masquerading as farmers.

What is the fertiliser requirement of a typical farmer?

It depends on the crop.
A farmer growing irrigated wheat or paddy may use about three 45-kg bags of urea, one 50-kg bag of DAP and 25 kg of MOP per acre.
A total of 100 bags would easily cover the seasonal requirement of a 20-acre farmer.
This could possibly be a reasonable cap to impose.
Those wanting more can well afford to pay the unsubsidised rates for the extra bags.

How much subsidy does a farmer really get per acre?

Fertilisers - For three bags urea, one bag DAP and half-a-bag MOP per acre, the farmer would spend a total of Rs 2,437 at existing MRPs.
The corresponding subsidy value will add up to Rs 2,418.3 per acre.
But then, farmers are also taxed on other inputs.
Other inputs - Take diesel, where the incidence of excise and value added tax is Rs 42.19 on a litre retailing at Rs 70.46 in Delhi.
On 30 litres of average per-acre consumption for paddy or wheat, that will be nearly Rs 1,266.
So, for every Re 1 spent on fertiliser subsidy, more than half is recovered as diesel tax.
GST - In addition, farmers pay goods and service tax (GST) on inputs, ranging from 12% to 18%.
Fertiliser itself is taxed at 5%.
Since there is no GST on farm produce, they cannot claim any input tax credit on their sales, unlike other businessmen.

What is next?

The time has come to seriously consider paying farmers a flat per-acre cash subsidy that they can use to purchase any fertiliser.
The amount could vary, depending on the number of crops grown and whether the land is irrigated or not.
This is the only sustainable solution to prevent diversion.
This also encourages judicious application of fertilisers, with the right nutrient combination based on proper soil testing and crop-specific requirements.

Source: The Indian Express