The move comes in the context of this item of revenue expenditure proving to be onerous and sticky, while there has been a steep decline in fuel subsidies after the decontrol of retail prices of petrol and diesel.
After years of dithering, the Center has restarted work on a roadmap to roll out a direct benefit transfer (DBT) system to contain the rising fertilizer subsidy bill. The move comes in the context of this item of revenue expenditure proving to be onerous and sticky, while there has been a steep decline in fuel subsidies after the decontrol of retail prices of petrol and diesel.
With the Ukraine war putting further pressure on global commodity prices, rating agency Icra has recently estimated that the Center’s fertilizer subsidy in FY23 to be 50% higher than the Budget Estimate at Rs 1.5 lakh crore. The Center’s fertilizer subsidy bill has risen steeply in recent years.
According to sources, the government is considering several options to save on its fertilizer subsidy expenditure, via improved targetting. One option is to let all the 14.6crore beneficiary farmers buy the soil nutrients at market rates and later transfer the subsidy to their Aadhar-linked bank accounts. The subsidy amount would be determined on a per-acre basis, without any cap on the landholding.
Another option is to make available subsidized fertilizer to the farmer or deposit the subsidy in cash to his bank account, subject to a landholding limit. If the landholding is higher than the limit, the farmer will be denied the subsidy for the land he holds above the eligibility threshold.
Subsidy component was fixed for P&K fertilizers effective April 2010 and this has resulted in subsidies on these fertilizers declining from Rs 41,500 crore in FY11 to Rs 26,369 crore in FY20. However, retail prices of urea, the most commonly used fertilizer, continue to be controlled. While the production cost of gas-based urea is about Rs 900/45 kg bag, the farmers get it for Rs 242, at a discount of over 70%. The spike in global natural gas prices is threatening to inflate the subsidy expenditure on urea.
Even the subsidy on P&K fertilizers has shot up again to Rs 37,372 crore in FY21 and to Rs 64,192 crore in FY22 as the government could not pass on the sharp rise in the cost of these fertilizers, which are mostly imported.
Currently, the government releases subsidy amount to fertilizer manufacturers periodically, based on Aadhaar- authenticated sales via point of sale (PoS) machines, which was rolled out from April 1, 2018, as a precursor to the rollout of the DBT mechanism. The PoS system helped the Center save `10,000 crore in fertilizer subsidy by plugging leakages in FY19.