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The Department of Fertilisers has objected to giving direct cash subsidy to retailers, even in the interim period.
“A detailed note containing the objection has been sent to the Finance Ministry. The Department believes that giving direct cash subsidy to retailers of fertiliser, even as an interim arrangement, will not serve the purpose of new mechanism,” highly placed sources said.
In the Budget this year, the Government had announced introduction of direct cash subsidy transfer for LPG, kerosene and fertiliser.
A task force headed by Mr Nandan Nilekani had advocated a three-phased approach to reform the subsidy disbursement mechanism. “At present, simplistically put, the fertiliser subsidy is given by the Government directly to manufacturers and importers. In the interim proposed framework, the subsidy is planned to be provided to retailers and ultimately to the intended beneficiaries (farmers),” the task force said in its interim report, submitted in June this year.
The first phase proposes to have information visibility up to the retailer level. The second phase consists of direct cash subsidy transfer to retailers, and the third phase ensures direct cash subsidy to the ultimate beneficiaries, i.e. the farmers.
The Department of Fertilisers is believed to have questioned why fertiliser was being singled out, when there was no plan to involve retailers for direct cash subsidy for kerosene. The Government provides subsidy for 23 grades of fertilisers (both indigenously manufactured and imported). There are over 2.3 lakh retailers of fertilisers.
The interim report of the task force envisages that the subsidy will be released to a retailer when he receives the fertiliser. This will involve transfer of subsidy directly to the retailer's bank account on receipt of fertiliser from the wholesale market. It was recognised that this phase would have the advantage of the fertiliser moving at full value across the supply chain, up to the retailer.
The task force believes that lessons from the interim arrangement will pave the way for smooth switch-over to the next phase of direct subsidy transfer to the intended beneficiaries, which is more complex due to its scale and eligibility issues. This phase is dependent on linking retailers to the core banking network.
The process, will also involve, inter-alia, the need to look into the payment procedures being followed by the Government. It is expected that the payment procedure adopted will be electronic, non-repudiable, credible, and auditable and will not require extra deployment of manpower, the report added.
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