As per a news report of August 2019, the government is preparing to give direct cash transfer (DCT) of a limited fertiliser subsidy amount to farmers’ bank accounts under the second phase of implementation of direct benefit transfer (DBT) scheme. This is a long-considered proposal to disincentivise farmers from overusing fertilisers. In October 2017, the first phase of fertiliser DBT was begun under which subsidy is being transferred to companies after surveying the retail sales data from point of sale (PoS) machines. The transfer of fertiliser subsidy into farmers’ bank accounts directly was to be considered in the second phase of fertiliser DBT scheme after a Niti Aayog Committee had looked into the matter. In November 2019, the Niti Aayog study was dismissed by the Union government. The study stated that 63.6 per cent of farmers surveyed did not prefer DCT in fertiliser subsidies.
Under the current practice, the government pays the subsidy amount to manufacturers or marketing firms and farmers can buy as much amount of fertiliser as they want at a subsidised rate as it is based on a ‘no denying policy’. The move will usher in a big change in the fertiliser subsidy policy of India. Direct payments to farmers are considered a better way to provide subsidies to the farmers, who are the final users.
There is a pressing need to replace farm subsidy with direct cash transfer. The annual subsidy outgo for fertiliser was ` 70,000 crore in 2016–17, over ` 69,000 crore in 2017-18 and ` 73,435 crore in 2018–19. In the current fiscal year (2019–20), till June-end, the subsidy outgo is already ` 29,000 crore. As such massive amounts are being doled out. the system of subsidy transfer should be rationised so that there is a disincentive for those who use excess amount of chemical fertilisers. When farmers get a limited subsidy amount, they will make judicious use of fertilisers. This will be beneficial in terms of being environment-friendly and reducing subsidy outgo on fertilisers.
Details The funds transferred under the new policy will be for procuring soil nutrients while two options are being mulled over, for the cash subsidy—either by fixing the amount per acre/hectare or giving a lumpsum amount for all identified lines similar to PM-Kisan Yojana (PMKY). These two options were based on the recommendation of the draft report of a panel headed by the Niti Aayog member, Ramesh Chand.
For transferring subsidy, the government is considering opening virtual accounts. These accounts can be operated by beneficiaries after access to a security code in the system that is provided to them. The beneficiary can use the code to make the payment at retail shops after authentication. Another option being considered is to transfer the subsidy to an e-wallet which will be credited in the bank account of every beneficiary, to be used only for buying fertilisers.
The fertiliser subsidy should be given to farmers on a per hectare basis and the prices of fertilisers should be market determined so as to ensure that they are efficiently utilised and there is no diversion to non-agri-uses.
At this point of time, rationalisation of subsidy is a good proposition. Completely eradicating subsidies is not a viable option, so it is best to rationise them through Direct Benefit Transfer (DBT).
The first step towards direct cash (income) transfer to farmer’s account was the implementation of the PMKY. other subsidies such as those on food, fertiliser, power, irrigation, and agri-credit could be combined with the PMKY and given directly to farmers.
Subsidies take a major portion meant for capital investment. This is one of the main reasons for the sufferings of farmers. Subsidies have led to reckless use of resources like water and power, and skewed the cropping pattern resulting in environmental problems. Moreover, the practice of monoculture has led to an increase in pest and disease attacks on crops and higher usage of chemical fertilisers. So, the solution lies in rationising subsidies by linking them to the size of the farm-holding and not to give them to every other farmer. All farm subsidies should be paid through DBT so as to reach the right beneficiaries.
Subsidies and money doles, however, may not be enough to end the distress in the agriculture sector. There are other problems like lack of infrastructure and market inefficiency that adversely affect the marginal farmers. These have to be addressed to find a long-term solution to the distress faced by farmers.
It is strongly recommended by some that subsidies should be gradually withdrawn in the long run and diverted to capital investments in the sector. Subsidy-driven approach is not sustainable; the real solution lies in creating infrastructure such as:
(i) a national-level warehousing grid with smaller warehouses near the farm gate;
(ii) setting up agri-processing centres;
(iii) making available assaying and grading machinery at mandis; and
(iv) affecting long-term policy decisions related to export trade, mechanisation, and modernisation of agriculture.