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 -

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