The Hindu Business Line : Going direct

The fertiliser industry is distraught, and well it might be, at the slow response of the Government in reimbursing companies for the urea and other nutrients sold to farmers cheaply and substantially below their cost of production. Based on a complex formula, the Government was to pay out Rs 24,000 crore in subsidy to the fertiliser companies in 2006-07; it did not do so in full. It will be no surprise if the Centre again does not meet fully the demand of Rs 32,000 crore for 2007-08.

Everyone knows why the burden is mounting. A significant proportion of the fertiliser units are fuelled by naphtha. Always costlier than its alternative, natural gas, naphtha has become an even more uneconomical feedstock after the oil price shock. In any other industry, the logic of the market place would have pushed manufacturers to switch to another fuel. Not here; many manufacturers continue to produce at ridiculously high costs with the Government ever so willing to mollycoddle them. Suggestions to alter the current scheme of subsidising farmers through payouts to industry were invariably drowned in the shrill refrain that any change would impinge on the country's food security.

The Finance Minister, Mr P. Chidambaram's plan, as announced in the Budget, to give the subsidy direct to farmers represents therefore a welcome shift in thinking. Farmers will get the purchasing power they badly need; manufacturers will get the freedom of the marketplace to price their products and shift to more efficient production methods; and the Government gets to moderate its expenditure. The modalities of delivery are yet being worked out, but the avenues available are promising. Government's helping hand must first reach out to the small and marginal farmers (holding less than one hectare each) who make up 60 per cent of the 11-crore farm households, and are usually the poorest. Giving them cash to buy the requisite nutrients — the national average use is 100 kg per hectare — ought to be the priority. The Government can extend an equal sum to the larger farmers, and still expect the subsidy bill to be dramatically less than what it is now.

There are, of course, imponderables: How would the Government reach out to each and every farmer? An impressive 6.4 crore farmers have enrolled for the kisan credit card and are ready targets; but many are still remote. Again, there may be tenants or occasional tillers who might be harder to identify or authenticate. But should the Government make an open offer to all farmers, the lure of the subsidy ought to get them queuing to register for the kisan credit card, and the only practical problem may be in weeding out the undeserving. For the industry, the course would be to look for more cost-effective and efficient ways to produce. Acquiring or building capacities abroad could well be a sensible complement to enhancing natural gas-based production at home.

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