One of the important features of the Budget presented by Mr.Pranab Mukherjee is to move towards a nutrient based fertiliser subsidy regime. In regard to this scheme, govt has approached leading bankers to extend their support to efficiently delivering subsidy amount to the end farmer. As such working out an efficient & transparent system is not a simple task.
Idea of delivering subsidy directly to the farmer is good. But, will this reduce the subsidy burden on the central government?
Let me try to analyse the situation when the scheme is in force;
- Norms would be designed in such a way that there will be an upper cap to use fertiliser. For eg, 3 Quintal of Urea/acre for Paddy in an irrigated area.
- In reality farmers use it more than what is recommended which is a routine now and changing the consumption habits will hamper the yield.
- If the yields are low, farmers will be in trouble and the net share to the GDP will come down drastically.
- To handle this problem, farmer will start declaring higher amount of land in cultivation so that he gets a better quantity of fertiliser.
- Corruption will increase in the system to get a better allocation share; there is a chance of grey market.
Base of the problem: In the last financial year, to woo the farmers, govt has reduced the MRP of all complex fertilisers by almost Rs60/- to Rs110/- to different categories of complex fertiliser. A significant reduction in the MRP has started affecting planned budget allocation for fertiliser subsidy. Central govt did not have funds to pay the subsidy bill raised by manufacturers of fertiliser, so they started issuing bonds to fertiliser manufacturers ( Duringthe last year monsoon all commodity prices reached the sky), leaving fertiliser manufacturers with no working capital to continue their operations. Finally, a shortage for fertiliser in the market.
My advice to the government;
- Stop wasting time on designing a system for nutrient based fertiliser subsidy scheme.
- Increase the MRP of all fertiliser, there by reduce the subsidy burden on central govt. (Reduction in the MRP has not reached end user, in fact it has created a black market. Because there was an acute shortage for fertiliser after the reduction in the MRP. Today fertiliser is sold above the last years price)
- Since a decade there is no revival of fertiliser prices, there needs to be regular changes in the MRP to acclimatise the respective situation in the market.
- Liberalise fertilise manufacturing policy.
- Invite private investments in this segment in an aggressive way.
- Devise a scheme where you can reduce the manufacturing prices.
- Do not alter the existing system of delivering subsidy.
