This document provides a policy perspective on the implementation of Direct Benefit Transfer (DBT) for fertilizer subsidies in India. It explores the challenges and potential benefits of DBT, focusing on issues related to beneficiary identification, land records, and technology infrastructure. This brief is intended for policymakers, agricultural researchers, and stakeholders in the fertilizer industry, and offers insights for improving the efficiency and effectiveness of subsidy programs.
Key Insights
Current Status of Fertilizer Consumption and Subsidies in India
Fertilizer is a critical input for Indian agriculture, with demand projected to rise to 320-340 million tonnes by 2030. The Government of India subsidizes fertilizers to make them affordable, but this has led to criticisms regarding fiscal burden and environmental impact. The paper notes that the “subsidy on fertilizers has often been criticized as the cost incurred by a farmer is much higher than the maximum retail price (MRP) (GOI, 2017), and also due to leakages and sale of fertilizers on higher prices by creating artificial shortages in the market during the peak demand periods.”
Direct Benefit Transfer (DBT) Implementation
A DBT scheme was launched in 2018 to enhance efficiency and transparency. Unlike DBT for LPG, fertilizer subsidy is disbursed to industry based on real-time sales monitored through point-of-sale (PoS) machines. The ultimate aim is direct cash transfer (DCT) to farmers’ accounts. “To this extent, DBT of fertilizer subsidy is a misnomer. But the ultimate aim is to implement Direct Cash Transfer (DCT) to the farmers’ accounts.”
Challenges in Implementing DBT
The implementation of DBT/DCT faces challenges such as identification of beneficiaries, entitlements for subsidy, incomplete digitization of land records, and differential subsidy rates. The paper mentions that the “Implementation of DBT/DCT of fertilizer subsidy is, however, a complex issue, as it involves several challenges such as identification of beneficiaries, entitlements for subsidy, incomplete digitization of land records, differential subsidy rates on different fertilizers, etc.”
Potential Benefits of DBT
DBT offers potential direct and indirect benefits, including creating an Aadhar-seeded database of beneficiaries, increasing transaction visibility, linking Soil Health Card (SHC) data, and preventing leakages. It can also leverage the extensive network of PoS devices for service delivery. “Putting-up PoS device at 2.26 lakh fertilizer retailers provides enormous opportunity for the governments to reach farmers, as this channel can also be utilized for service delivery by other departments of the ministries implementing similar schemes.”
Challenges in area-based approaches to DBT
Area-based approaches, where farmers receive a subsidy based on landholding size, are problematic due to variations in cropping patterns, management practices, and resource endowments. Fertilizer consumption varies widely across states and may not correlate with gross cropped area (GCA). “Fertilizer consumption varies widely across states and may not have a definite trend matching with the GCA.”
Key Recommendations for Improving DBT
The paper recommends defining beneficiaries, addressing land leasing issues, ensuring adequate budget allocation, and gradually raising urea prices. Digitization of land records and SHC integration are also crucial. “For success of DCT, digitization of land records should be completed at the earliest. Also, the subsidy amount may be paid to farmers in advance through e-wallet to avoid hardship on account of purchase of fertilizers at market prices.”
Key Statistics & Data
- Total fertilizer consumption increased 93 times from 1960-61 to 2018-19.
- Subsidy on urea in 2019-20 was Rs. 53,629 crore, while the nutrient-based subsidy was Rs. 26,367 crore.
- The total fertilizer subsidy in 2019-20 was Rs. 79,996 crores.
- About 44.7 percent of the GCA consumes more than 62 percent of the total fertilizer use
- 53% of the GCA in the country is rainfed where the recommended doses of fertilizers are relatively low.
Methodology
The policy brief synthesizes information from an Experts’ Meet on “Direct Benefit Transfer under Nutrient-based Subsidy Regime” organized by the National Academy of Agricultural Sciences (NAAS). It incorporates insights from representatives of the Department of Fertilizers, Government of India, Indian Council of Agricultural Research, fertilizer industry, and farmers’ organizations. The analysis also draws on economic surveys, agricultural statistics, and reports from the National Sample Survey Office (NSSO).
Implications and Conclusions
The effective implementation of DBT for fertilizer subsidies requires addressing complexities related to beneficiary identification, land records, and regional variations in agricultural practices. Policy recommendations emphasize the need for clear definitions of beneficiaries, integration of Soil Health Card data, and a gradual increase in urea prices. Ultimately, the goal is to enhance fertilizer use efficiency, promote balanced fertilization, and ensure sustainable agricultural productivity while reducing the fiscal burden of subsidies.
Key Points
- DBT aims to transfer subsidies directly to farmers' bank accounts, but current implementation disburses to industry based on real-time sales.
- Challenges include identifying beneficiaries, addressing incomplete land digitization, and varying subsidy rates.
- Potential benefits include creating an Aadhar-seeded database, increasing transaction visibility, and linking Soil Health Card data.
- Area-based approaches to DBT face complexities due to diverse cropping patterns and seasonal variability.
- PoS machine and biometric authentication issues hinder effective implementation.
- Key recommendations include defining beneficiaries, addressing land leasing issues, and ensuring adequate budget allocation.