A National Committee (NC) under the Prime Minister has been constituted on ‘direct cash transfer’ of subsidy. Will this prove to be more potent than the present dispensation? What is wrong with the latter?

The present system does not differentiate between rich and poor; breeds inefficiencies and distortions, undermines competition and gives an easy platform to all and sundry — producers, suppliers, traders — to make unjust gains.


Urea MRP is controlled at a low level unrelated to cost of supply, which is much higher. A differential amount is reimbursed to the producer as subsidy. It varies depending on source of supply, whether it is import or indigenous.

Decontrolled P&K fertilisers, too, are subsidised. Unlike urea, all producers/suppliers are given subsidy at a fixed or uniform rate. However, they are free to vary the selling price.

‘All’ farmers — irrespective of the size of land, crop, location — get urea at a ‘uniform’ price per kg.

As regards P&K fertilisers, though the price may differ depending on source, they all benefit from ‘subsidy-enabled’ lower MRP.

Giving subsidised fertiliser to small and marginal farmers may make sense. But, to give it to a farmer with, say, 10 hectare or more, or someone who owns large plantations or orchards raises hackles!

Subsidy was first introduced on urea in 1977 (1979 for DAP and complex fertilisers). At that time, we were deficient in availability of food and the prime objective was to encourage fertiliser use, and thus increase food production.


The country needed all categories of farmers — large, medium-size, small or marginal — to be an integral part of this national endeavour.

Today, India is self-sufficient in food. We are exporting a substantial quantity of rice, wheat and other agricultural produce. But subsidy continues to be given to all!

Under a subsidy phase-out road map, recommended by Expenditure Reforms Commission (ERC) in 2000, the Government had intended to ‘retain subsidy only to poor farmers’ from 2005-06 onwards. That has not happened.

In the 1990s, Ashok Gulati estimated that 50 per cent of fertiliser subsidy accrues to manufacturers. Suppliers of raw materials or intermediates such as rock phosphate, sulphur, phosphoric acid (mostly global) get away with a good slice of this subsidy.

The very existence of a subsidy regime sends a wrong signal to suppliers. Globally, supplies are controlled by a few producers.

Oil subsidies benefit all consumers. Use of subsidised diesel for running cars ‘demeans’ concept of subsidy. The recent hike in price (applicable to all) does not take us anywhere. In the case of LPG, the Government has made a half-hearted move by merely capping number of subsidised cylinders. It argues that poor families need only six in a year (now revised to nine in most States). The rich consume more; so they are not entitled to subsidy on ‘incremental’ cylinders. But, why give them subsidy even on six?

The subsidy on kerosene continues to be brazenly cornered by dubious operators and traders through leakages and diversion. A psyche that this is a poor man’s fuel has been exploited to the hilt by persistently keeping its price at an ‘artificially’ low level, despite the steep increase in cost of crude.

In case of foodgrains, the story is no different. Anyone, rich or poor, who holds a ration card can access food at a subsidised price.

For those above poverty line (APL), the extent of subsidy is less than for those below the poverty line (BPL). Like others, much of food subsidy, too, is misused.

An astronomical subsidy level of close to Rs 300,000 crore threatens to derail the fiscal deficit target. Much of this is going to those who do not deserve it.

The setting up of a NC does not inspire confidence. For each of the sectors, expert committees have already given their ‘blueprint’ for direct cash transfer.

Several States are running pilot schemes too. In Aadhar, we have a delivery platform. It is time to act.

Moving forward, three things must be kept in mind. First, a ‘composite’ cash transfer merging food, kerosene/LPG and diesel should be put in place. For farmers, this basket will include fertiliser.

Based on the income of a poor consumer or farmer and a reasonable assumption about the portion he can allocate for the ‘mentioned items’ and the likely cost of supply, the amount can be worked out. Payments to be credited in their account may be released each month.

Second, given wide fluctuations in prices of these items, the system should be well equipped to revise the amount.

This exercise can be done on a monthly basis and payments adjusted accordingly.

Third, and most important, the intent and uprightness of those in charge of identifying the poor and delivering cash should be above doubt.

If these are in place, there will be huge savings in subsidy.

(The author is Executive Director, CropLife India. The views expressed.)

(This article was published on November 11, 2012)
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