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LATEST NEWS UPDATES | Centre's new plan to delay fertiliser subsidy phaseout-Rituraj Tiwari & M Rajshekhar

Centre's new plan to delay fertiliser subsidy phaseout-Rituraj Tiwari & M Rajshekhar

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published Published on Apr 4, 2012   modified Modified on Apr 4, 2012

UPA-II's plans to replace the existing fertiliser subsidy regime with direct cash transfers to farmers will be delayed as the fertiliser ministry is likely to scrap an intermediate phase where the subsidy was to be rerouted from companies to retailers this summer.

This puts paid to the fertilizer industry's expectation that very soon it would be out of the subsidy mechanism which locks up precious working capital.

"We are rethinking the original plan. Rather than routing subsidy through retailers, we now want to pass it on directly to farmers after linking it with their Aadhaar numbers," said a senior ministry official involved in the process.

In the original plan, formalised shortly after last year's budget, the ministry was to extend its fertiliser management system - in order to track fertiliser flows - beyond the 30,000-odd fertiliser warehouses to all 230,000 licensed retailers in the beginning of 2012.

In the second phase, slated to start this kharif, retailers would buy fertiliser at market rates and then sms transaction details to the government which would then transfer the subsidy to their bank accounts. The third phase, cash transfers to farmers, was to be rolled out once farmers got unique identification (UID) numbers.

The ministry now thinks that deleting the second phase will expedite the switch towards cash transfers. "There is no need for phase 2. When the end beneficiary is farmer, we should transfer it directly to him preventing any leakage in this proposed three-tier system," added another official in the ministry.

Phase-two was being opposed by both companies and retailers. "If wholesalers and retailers have to pay upfront for fertiliser and get the cash afterwards from the government, our volumes will fall.

Given the available working capital, a person buying 300 tonne will now only be able to buy 100 tonne," a wholesaler in Karnal, where the mobile-phone based expanded fertiliser management system (mFMS) had been piloted, had told ET this January.

Also, glitches in mFMS are yet to be ironed out. In Karnal, for instance, the software was available only in English, and it was not working on all handsets.

"Farmers are the ultimate beneficiaries of subsidy. It should go to them directly. Fertilizer companies should not be involved," said IFFCO managing director U S Awasthi.

However, this means that the government's plans for redirecting the fertiliser subsidy away from companies will be delayed. After all, before the subsidy can be directly passed onto farmers, they need to get their UID numbers.

That said, it looks like both retailers and farmers will only get short-term relief. In his speech, Finance Minister Pranab Mukherjee said that while subsidies related to the food security act will be fully provided for, "all other subsidies would be funded to the extent... they can be borne by the economy." In other words, farmers and retailers will gradually have to pay more for fertilisers.

This is already happening, said Himanshu, an assistant professor at JNU, "While the price of urea has more or less stayed around Rs 500 over the past 6-7 years, that of DAP, for instance, has climbed from Rs 1,050 in 2010-11 to Rs 1,500 by June 2011 and is currently at Rs 1,900. It will definitely increase further."


The Economic Times, 3 April, 2012, http://articles.economictimes.indiatimes.com/2012-04-03/news/31281253_1_fertiliser-subsidy-food-security-act-uid-numbers


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