The central government of India is developing a strategy to limit the quantity of fertilizer bags individual farmers can purchase during any cropping season. The initiative is aimed at countering diversion, a common occurrence with underpriced products like urea, which is frequently misused for non-agricultural activities.
Fertiliser Subsidies: An Overview
Fertilisers in India are provided to farmers at Maximum Retail Prices (MRP) significantly lower than their production or import costs. For instance, the MRP for neem-coated urea, regulated by the government, stands at Rs. 5,922.22 per tonne, while its average production cost for domestic manufacturers and importers comes roughly around Rs. 17,000 and Rs. 23,000 per tonne respectively. The discrepancy between these prices is subsidized by the central government, funnelling this subsidy to companies. Conversely, the MRPs of non-urea fertilisers are either decontrolled or determined by the companies themselves.
Decoding the Subsidy Mechanism
In March 2018, a new Direct Benefit Transfer (DBT) system was implemented. Under this system, subsidy payment to companies occurs only after sales to farmers by retailers have been confirmed. Each retailer is equipped with a point-of-sale (PoS) machine connected to the Department of Fertilisers’ e-Urvarak DBT portal, recording details of every transaction. To purchase subsidized fertilisers, buyers must provide their Aadhaar or Kisan Credit Card (KCC) numbers.
The Loophole
Despite the DBT system implementation, non-farmers can also purchase any amount of fertilisers through the PoS machines due to a “no denial” policy. This loophole has opened doors for bulk buying from undeserving beneficiaries and non-farmers. Although there’s a single-transaction limit of buying 100 bags, the policy does not restrict the frequency of purchases.
The Restriction Plan: Reasons and Measures
The government’s plan to restrict fertiliser purchase is mainly to prevent the diversion of underpriced and over-subsidized products like urea. Misuse of these products is rampant in various industries such as plywood manufacturing, animal feed making, illegal smuggling, and more. To curb this diversion, discussions are taking place about implementing a cap on the total number of subsidised fertiliser bags that a person can buy during an entire cropping season.
Other Costs Borne by Farmers
Despite subsidised fertilisers, farmers also face costs associated with Goods and Services Tax (GST) and other taxes on inputs necessary for farming. These range from 12% charged on tractors, pumps, and irrigation systems to 18% on crop protection chemicals. Fertilisers carry a 5% tax on them.
A Call for Change
In light of these issues, some believe that it might be beneficial to offer farmers a flat per-acre cash subsidy instead. The subsidy amount could vary depending on the type of crops grown and whether the land is irrigated or not. This approach could potentially deter misdirection and encourage appropriate application of fertilisers, maintaining the right nutrient balance suitable for specific crops and soil types.
Last Modified: February 9, 2024