How DCT can help the fertiliser sector deal with main challenges

Fertiliser subsidy accounts for second highest subsidy in India at around 22% of overall subsidy burden amounting to Rs 79.5 thousand crores. Given the high fiscal outlay, it is crucial to responsibly design and implement an efficient, effective and environmentally sustainable architecture for the distribution system of fertiliser.

The government has introduced several path-breaking reforms laying a strong foundation for this endeavour. These include introduction of the Fertiliser Management System to monitor operations across the value chain, neem coating of urea to prevent pilferage into non-farm uses, gas-pooling to increase production efficiency of domestic urea, Direct Benefit Transfer System enabling capture of real time movement from plant port to retail and also thr sale of fertiliser through point-of-sale machines.

There has been intensive focus on revival of 5 fertiliser plants (Ramagundam, Gorakhpur, Barauni, Sindri and most importantly Talcher) to augment country’s overall urea production by 63.5 LMTPA aligned with the Atma Nirbhar paradigm. Finally, the government has allocated Rs 65 thousand crores to clear all the compensation dues of fertiliser companies.

These carefully orchestrated reforms provide the building blocks for the next iterative reform, direct cash transfer (DCT). As of now, farmers pay the subsidized price and the difference between the MRP and the cost goes as subsidy to the manufacturers. This involves procedural hassles, monitoring difficulties and informed access challenges for farmers.

DCT in fertiliser can solve for varied challenges like leakage of benefits with inclusion, exclusion and quantity errors, underpricing of Urea, soil health degradation. These can be substantively tackled if the design of DCT is optimal.

The Economic Survey of 2015-16 brought attention to the malady of unintended beneficiaries cornering a high proportion of the subsidy transfer. This will be mitigated if the subsidy transfer is directly targeted to the intended beneficiary. However, unlike, other cash transfer schemes the modalities of the DCT needs careful configuration to take into account the interest of stakeholders and their contexts. Currently there is an absence of a

dedicated database for the targeted beneficiaries. The Ministry of Agriculture plans to create a farmer data base augmenting the already created database such as the 105 million crore PM-KISAN beneficiary families. This new database will include all the exempted categories of PM Kisan list along with the database of registered tenant farmers. Going forward, states that lack a registered tenant database should conceive policy provisions to formalise tenancy and create a digital database.

After identifying the right beneficiaries, next step would be determining subsidy’s quantitative estimate. A simple option would be to distribute the available fund based on the area of land of beneficiaries. However, given varied agroclimatic conditions, farmers may need different types and quantities of fertiliser. Hence land-based distribution might not be optimal. It is ambitious but highly prudent, to consider state wise agroclimatic condition while deciding subsidy amounts regionally.

Indian Council of Agriculture Research has laid out an agro ecological map for the entire country across 128 agro ecological zones. Interventions such as this can be utilised to delineate optimum crops, fertiliser requirement and hence subsidy amount. The soil health cards mechanism may be the game changer to latch on to for this analysis. This design could be the birth of agro-policies which maximise the potential of farm lands based on their unique agro-climatic characteristics.

It is also important to ensure a smooth mechanism for delivery of cash in time with minimum transaction costs. Fertilizer use is time sensitive and any major delay in availability of cash will adversely impact productivity potential and most importantly farmer income avenues. Fortunately, India’s financial inclusion mission has been propelling forward ensuring last mile outreach. Powered by India Stack and the JAM trinity, today, there are nearly 410 million beneficiaries—with 63.6% account-holders in rural areas and 55.2% of them women. Furthermore, as mentioned above PM Kisan at the Union level and state level schemes such as KALIA in Odisha, Ryuthu Bandhu in Telenagana has ensured a subset of farmer beneficiaries’ databases with formal bank accounts which can be leveraged. DCT also brings the challenge of ensuring transfers are indeed being used for buying fertilisers. For this an option for conditional transfer based on virtual account solution (e-wallets) could be explored to restrict farmers in using their cash transfer solely for the purpose of fertilizer purchase.

Deregulation of Urea prices is substantively important for DCT. This can be done by bringing Urea under Nutrient Based Subsidy scheme ensuring prices in domestic markets are closer to the prices in international market. The experience of NBS in P&K fertilisers has been fairly successful in keeping the prices stable in the domestic market despite having price volatility in international market. The same price stability is expected if Urea comes under NBS regime.

Finally, an important consideration while designing DCT for fertiliser is to encourage optimal use of fertilizer. Under-pricing of urea in comparison to other fertilizers like Phosphorus and Potash has led to its overuse. The current consumption ratio of nitrogen, phosphorus and potassium (NPK) is 6.3:2.5:1 against their desirable ratio of 4:2:1. This has adversely impacted soil health and sustainability. Once again it would be crucial to integrate Soil Health Cards with the foundational design of DCT to solve for this challenge. For the Soil Health Card Scheme, in Phase-I (Years 2015 to 2017) 10.74 crore cards were distributed, while under the Phase-II (2017-19) 116.9 million cards have been given. In the year 2019-20, a pilot project “Development of Model Villages” was conceived, in which 1.353 million Soil Health Cards were distributed. The potential of these cards to ensure environmental sustenance is massive and shouldn’t be missed upon in designing DCT for fertiliser sector.

DCT architecture needs to keep into cognizance identification of intended beneficiaries, accurate estimation and then expeditious transfer of subsidy amount, encourage rational use of fertiliser in terms of quantity and also align to Agro climatic conditions.

This much needed reform obviously can’t happen overnight. It will require incrementalism which solves each challenge piece of the fertilizer jig-saw. Yet, given its multifaceted benefits, this ‘incrementalism’ should be taken up in mission mode to bring together an efficient and efficacious fertilizer economy. As we begin to reimagine agriculture policies and bring in to focus agro climatic planning, DCT in fertiliser would be a game changer for the entire ecosystem of agriculture.