The introduction of the direct benefit transfer (BDT) scheme in the fertiliser sector may have helped the government save more than Rs 10,000 crore, but it has hit the bottomline of many fertiliser companies.
The government claimed recently that it could save an amount of Rs 10,800 crore in the first year of the roll-out of DBT scheme in fertiliser sales, but the scheme has pushed the payment received by fertiliser companies by 6 to 8 months instead of earlier 45 days, increasing the interest cost borne by the firms on working capital.
The government spends a sum of Rs 70,000 crore towards fertiliser subsidy annually.
Delayed payment
“As part of the urea policy, we are supposed to produce and sell urea within 45 days. So, the interest component worked out under the pricing policy was for 45 days. So, the payment due to fertiliser companies was calculated based on the receipt of material in the district. Now, with the introduction of DBT, this goalpost has been shifted to point of sale,” said Satish Chander, Director General, Fertiliser Association of India.
Farmers normally purchase fertilisers only twice a year — during kharif and rabi crop seasons. As a result, there is a gap of 6 to 8 months between the manufacture of the fertilisers and the purchase by the farmer, he said. “If earlier the company was paying Rs 50 per tonne as interest charges to the bank, now it pays anywhere between Rs 600 to 800 per tonne,” said Chander, at a press meet organised on the eve of FAI annual seminar that commences on December 2, 2019.
Budget constraints
“The implementation of DBT assured weekly payment of subsidy. However, this assurance is not kept due to persistent budget constraints. This has increased working capital requirement and interest cost. The fertilizer companies were also assured of clearing the pending backlogs of subsidy dues before the implementation of the DBT model. This assurance has also not been honoured as large amounts of dues continue to remain pending outside the DBT system,” he said.
According to FAI, a total of Rs 33,691 crore dues are pending as on November 1. Out of this, Rs 20,853 crore is under the DBT, and Rs 12,838 crore dues are outside the DBT.
The increase in working capital requirement and consequent increase in interest cost due to implementation of DBT is yet to be recognised in the urea policy. Urea units cannot recover this cost from farmers through increased MRP because MRP is fixed by the government. Subsidy comprises 78 per cent of cost of urea, Chander said.
'Course correction needed'
The trade body of fertiliser firms said that there is a need for a major course correction. “The instrument of subsidy needs to be used in promoting balanced and integrated use of all fertilizer nutrients through all sources including chemical fertilisers, organic manures, bio-fertilisers, secondary and micronutrients,” it said in a statement.
The firms also rued that though the government revised fixed cost to urea unit in 2014, no payment has been made so far. This increase of Rs 350 per tonne of urea and a special compensation of Rs 150 per tonne gas-based plants more than 30 years old has now ballooned to Rs 5,600 crore but not has been paid so far, they said.