Extension of Urea Subsidy

Why in news?

The government has approved a proposal to extend urea subsidy till 2020.

What are the measures?

• Urea - Urea is made available to farmers at a statutorily controlled price of Rs 5,360 per tonne.
• The difference between the delivered cost of the fertiliser at farm gate and maximum retail price is given as subsidy to manufacturers.
• The Cabinet Committee of Economic Affairs (CCEA) has recently cleared the proposal of the Department of Fertilizers.
• Accordingly, the urea subsidy has been extended for 3 years till 2020.
• Normally, the ministry of chemicals and fertilisers takes approval for the urea subsidy on an yearly basis.
• However, this time it has received clearance for 3 years.
• DBT - The CCEA has also approved implementation of direct benefit transfer (DBT) for disbursement of fertiliser subsidy
• DBT would entail 100% payment to fertiliser companies.
• Continuation of the urea subsidy will facilitate smooth implementation of DBT scheme in fertiliser sector.

How is fertiliser DBT different?

• The direct benefit transfer (DBT) for fertilisers differs from the one implemented for LPG subsidy.
• For fertilisers, payment would not be transferred to a farmer’s bank account.
• It would instead go to manufacturers and importers on actual sales made by a retailer.
• Currently, the company is eligible for subsidy payment after submitting invoices prepared on the basis of receipts at the district-level warehouses.
• This typically takes 45-60 days.
• Under DBT, the retailer will record the transaction on a point of sale machine authenticated with biometric information of the farmer.
• The fertiliser maker will be entitled to get 100% subsidy in 7 days.
• The government is pushing all companies to set up retail centres.
• DBT would set right some of the challenges faced by both the industry and the government such as -

1. diversion of subsidised urea for industrial use
2. delay in subsidy payments
3. skewed usage of nutrients
4. smuggling to neighbouring countries

What are the concerns with urea subsidy?

• Farmers tend to use urea excessively because of its low prices, made possible by the subsidy.
• This is ruinous for soil health and agriculture in the long-run.
• Moreover, a bulk of subsidised urea is cornered by a handful of rich farmers.
• Farmers with large land-holdings can show a high urea demand.
• This can become a route for both farmers and re-sellers to exploit the black market for urea.

What is the way forward?

• Farmers should be aware of the effects of overuse of fertilisers on soil health.
• A far better approach would be to fix a per hectare grant in place of fertiliser subsidies.
• The grant could be mapped against the fertiliser requirement that, in turn, is assessed from soil health card sampling.
• This can ensure access to fertiliser and address urea leakages as well as curb its overuse.

Source: The Hindu, Financial Express