Fertilizer subsidy may cross ₹1 trillion in next fiscal

The Centre had in November last year allocated an additional ₹65,000 crore fertilizer subsidy to the sector for 2020-21. This was over and above the budgeted ₹71,309 crore for the year. Now, the Union Ministry of Chemicals and Fertilizers has proposed a subsidy of ₹1 trillion for the next fiscal after having cleared the backlog to producers. This has taken the total subsidy bill in this fiscal to ₹1.36 trillion, including the additional allocation of ₹65,000 crore, LiveMint reported.

The paper, quoting a government official, said the Centre may also roll out an ambitious scheme to transfer the subsidy directly to the bank accounts of potentially 140 million farmers across the country, instead of financing manufacturers who at present sell at subsidized prices.

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Urea is the top fertilizer in India, and almost 75 per cent of its cost of sales comes from subsidies from the government. The Fertilizer demand grew exceptionally high during April-August last year over the same period the previous year due to a good monsoon and record increase in kharif acreage.

The subsidy on fertilizers has been around ₹70,605 crore and ₹79,998 crore in FY19 and FY20. The increase in the current fiscal and the next is expected to widen the Centre’s fiscal deficit, the paper reported.

The government will in the next fiscal will stress extending the direct benefit transfer (DBT) scheme in the sector to farmers. At present, the scheme, which began as a pilot project in 2017 and extended nationwide the next year, transfers subsidy to manufacturers based on data received in the point of sale (PoS) devices at retail shops.

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The DBT scheme continues to involve complexities. “Discussions are on about the beneficiaries to be covered, the definition of farmers under the scheme, and the practical aspects of it. The intention is to cover every farmer, including tenant farmers, those tilling panchayat land, and land-owning farmers. One possibility is to begin the scheme on a pilot basis,” the official told LiveMint.

A key task for the government is to ensure that landowners do not pocket the subsidy meant for farmers.