Fertilizer Next

Congress Party has not yet spelt out whether it is ‘second generation’ reforms or ‘third generation’ reforms. But it may be the final round of reforms for the Congress-led United Progressive Alliance (UPA) government at the centre.

After cut of subsidies on diesel and LPG in order to rein in the burgeoning fiscal deficit fertilizer and food come next on the firing line. But mere cut in subsidies is not the direction to go. More creative solutions are required which can lead both to better targeting and also reduction in financial burden. The Government is actually providing huge subsidies to the manufacturers of fertilizers, especially urea, not farmers as such. Many of these companies are inefficient. According to a document of the Finance Ministry only 46% of the amount was reaching the farmers in 1999-2000. The balance 54% was subsidizing inefficient producers. Second problem is that the farmer must have access to other complementary inputs, particularly irrigation, in order to buy the subsidized fertilizers. These inputs are available mostly with rich farmers. Thus the benefit of this subsidy accrues to rich farmers.

The Government had constituted a Committee under the Chair of Dr Y K Alagh few years ago to study this issue. Among the suggestions made by Alagh, one was to give fertilizer subsidy to the farmers directly in three districts on experimental basis. The same suggestion has been made by some economists. Standing Committee on Chemicals & Fertilizers in its Ninth Report for 2005-06 had also suggested giving "direct payment of subsidy to the farmers." The fertilizer companies are opposing this move which is understandable. They stand to lose the subsidies being got by inefficient producers. But it is surprising that the Government has also dismissed this proposal on the grounds of administrative impracticability.

Main objection of the Government is that it will be near impossible to identify the actual purchasers of fertilizers so that they could be given compensation in cash. But there are alternative ways to make it practicable.

The main objection to the giving of subsidy in cash directly to the farmer is identification of the farmer and establishing that he has actually purchased the fertilizers. These problems do not arise in the alternative scheme. All farmers may be given the coupons irrespective of whether they use fertilizers or not. It is likely that some farmers will sell the coupons to other farmers or to traders. Instead of decrying this, one may consider this as a payment to the farmers for maintaining national food security. Such across-the-board distribution will not reduce the use of fertilizers. Another person will purchase the coupon and buy and use the fertilizer. The net result will be that the subsidy will be shared between the farmer who does not use the fertilizer and the one who does. The farmers' community as a whole will be benefited in either case. The farmer should be given the freedom to either buy fertilizers with the coupons to encash them for meeting his other pressing needs because the total consumption of fertilizers remains unchanged. The gain is that the government is freed from giving subsidies to manufacturers. Secondly, fertilizer will be sold in the market at the commercial rate. This will cause the farmers to use Nitrogen, Phosphates and Potash in tune with their market prices. Presently farmers are using excess Nitrogen because that is heavily subsidized. No, government is unlikely to do that. What all they want is to subsidize the rich farmers and fertilizers manufacturers.

It may be pointed out that the United States runs a system of giving direct subsidies to its farmers for many decades. Indian leaders are ever willing to emulate that country in matters such as patents laws, free trade and human rights. Then why not follow that same country where direct distribution of subsidies is concerned? The real obstruction to implementing direct transfers is the bureaucratic self-interest. Government officials are loath to implement any scheme that will actually reach benefits to the people and not enable the bureaucracy to take away a good slice of it.

For one thing farmers are using higher levels of fertilizers but the production is stagnant because the ability of the soil to absorb the fertilizers and provide it to the plants is being eroded in absence of organic matter. Substituting fertilizer subsidy with subsidies on straw and green manures will lead to higher organic matter in the soil and help the country attain long term food security. But the advocates of reforms are unlikely to act in a way that is beneficial to the country and its people in the long run.

Vol. 45, No. 12, Sep 30 -Oct 6 2012

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