Fertilizer subsidy

Subject: Economy

Context: A bountiful monsoon has brought a new challenge for the Finance Ministry, with the subsidy bill for fertilisers this year expected to be much higher.

Concept:

• Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.•
• The difference between the retail price and production cost/domestic price is given as subsidy to manufacturers.

Present regime of fertilizer subsidy – Partial DBT (Since April 2018)

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• Manufacturers of fertilizers(urea) receive 100% of subsidy after fertiliser is delivered to the farmer, and the latter’s identity viz. Aadhaar is captured on the point of sale (PoS) machine at the dealer’s shop.
• Therefore, the subsidy continues to be routed through manufacturers even though the sale of fertilizer is being verified using Aadhar ecosystem
• The manufacturers sell urea at the maximum retail price (MRP) controlled by the Centre, which is kept at a low level. They also get subsidy reimbursement on unit-specific basis under the new pricing scheme (NPS)
• The MRPs of non-urea fertilisers are decontrolled or fixed by the companies. The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels (based on Nutrient based Subsidy scheme) .
• At present, the Centre is following a “no denial” policy. Anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines. It leads to bulk purchase of urea that is used for non agri purposes.
• Hence, government is considering to put a cap on the maximum amount of  fertilisers anybody can buy during kharif /rabi seasons.