Context: The Centre is working on a plan to restrict the number of fertiliser bags that individual farmers can buy during any cropping season.

Fertiliser subsidy

  • Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates.
  • The difference between the MRP and market price, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
  • The per-tonne subsidy is currently 
    • Rs 10,231 for di-ammonium phosphate (DAP) (MRP Rs 24,000)
    • Rs 6,070 for muriate of potash (MOP) (MRP-Rs 17,500)
    • Rs 8,380 for the popular ‘10:26:26’ complex fertiliser (MRP- Rs 23,500 per tonne)
  • Urea’s basic MRP (excluding taxes and neem-coating cost) has been raised by hardly 11% from Rs 4,830 to Rs 5,360 per tonne since April 2010. 
  • The MRPs of non-urea fertilisers are decontrolled or fixed by the companies. 
    • The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”. 
    • Decontrolled fertilisers, thus, retail way above urea, while they also attract lower subsidy.
    • Their per-tonne MRP of DAP has risen from Rs 9,350 to Rs 24,000, 
  • “No denial” policy: Anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines. That allows for bulk buying by unintended beneficiaries, who are not genuine or deserving farmers. 
    • While there is a limit of 100 bags that an individual can purchase at one time, it does not stop anyone from buying any number of times. 

Net Subsidy per acre

  • The subsidy value adds up to Rs 2,418.3 per acre.
  • Farmers are taxed on other inputs like excise and value added tax on diesel. For every Re 1 spent on fertiliser subsidy, more than half is recovered as diesel tax.
  • Goods and service tax (GST) on inputs, ranges from 12% on tractors, agricultural implements, pumps and drip/sprinkler irrigation systems to 18% on crop protection chemicals. 
  • Fertiliser itself is taxed at 5%. 
  • And since there’s no GST on farm produce, they cannot claim any input tax credit on their sales, unlike other businessmen.

Direct benefit transfer (DBT): 

  • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates. 
  • 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 Department of Fertilisers’ e-Urvarak DBT portal. 
  • Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number. 
  • Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.

Advantages of DBT

  • Curbs diversion: Being super-subsidised, urea is always prone to diversion for 
    • Non-agricultural use — as a binder by plywood/particle board makers, 
    • Cheap protein source by animal feed manufacturers or adulterant by milk vendors
    • Being smuggled to Nepal and Bangladesh. 

With DBT, pilferage happens only at the retailer level, as there is no subsidy payment till sales are made through POS machines and subject to the buyers’ biometric authentication.

Way forward:

  • The govt. should 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. 
  • Cap on Urea bags:  Capping the total number of subsidised fertiliser bags on 100 bags would easily cover the seasonal requirement of a 20-acre farmer. 
    • This would end even retail-level diversion and purchases by large buyers masquerading as farmers.
    • Those wanting more can well afford to pay the unsubsidised rates for the extra bags.

Encourage judicious application of fertilisers, with the right nutrient (macro and micro) combination based on proper soil testing and crop-specific requirements.

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