DBT for fertilisers has to be similar to that on LPG
The fact that, as this newspaper reported on Wednesday, the government has been able to start various pilot projects on direct benefits transfer (DBT)—it has been done in 11 districts already—is a big positive and suggests that, over the next 6-12 months, it should be possible to cover the entire country; with 77% of point-of-sale outlets already equipped with Aadhaar-reading scanners, it may take even less time. The problem is that the ‘DBT for subsidised fertiliser’ project is loosely conceived and is unlikely to achieve its objectives, of reducing leakages of subsidies, encouraging the industry to grow and empowering farmers. What makes this a bigger pity is that the government already has a well-functioning DBT scheme for cooking gas (LPG); so, all that needed to be done was to copy that.
In the LPG scheme, customers get a fixed amount of subsidy in their bank accounts, and they pay the market price to the LPG supplier. Since all purchases are done at market prices, there are no dues for suppliers and this encourages new players to enter the market as well. In the case of fertilisers, however, purchases are made—based on an Aadhaar authentication of the buyer—at a price which is, right now, 30-40% of the market price; the balance is then credited to the suppliers’ account. If this happens as soon as the sale happens, there is no difference—at the beginning of the year, dues to fertiliser firms exceeded Rs 43,000 crore. With their fate in the hands of government policy on dues, it is unlikely too many new players would want to enter the market.
Also, in the case of LPG, there is a fixed number of cylinders everyone gets in a year, the subsidy is also known. For fertilisers, all that the DBT does is to authenticate who is buying it, there is no cap on the amount or the subsidy. Since 10-15% of fertiliser gets diverted to other countries or to industrial uses, in a DBT scenario, a farmer can buy 10 kg or 100 kg or 1,000 kg and be part of the diversion—ideally, then, the government must come up with per acre norms of usage and fix a ceiling on how much will be eligible for a subsidy; the subsidy per kg should also be fixed in advance. One argument against this is that, since all urea is neem-coated, the scope for diversion is limited—experts, however, argue that this may prevent urea from being mixed in milk, it does not stop it from being used in plywood manufacturing; to the extent, neem-coated urea makes it better, it reinforces the case for smuggling for use in farms in neighbouring Nepal and Bangladesh. Doing fertiliser subsidies the LPG way has another advantage in that it empowers farmers—China has moved to giving all input subsidies to farmers in cash. Once farmers get the subsidy in their bank accounts, they can decide how much of fertiliser they want to use, and even which one; but if the current system continues, farmers have no incentive to lower usage—this is why, right now, there is so much overuse of urea which also damages the soil. Indeed, the government also needs to move to LPG-style DBT for ration shops so the corrupt-and-distorting FCI-system can be ended and farmers freed to grow the crop the market wants, not just what the government is able to buy.