With a long-lasting El Nino wreaking havoc on farm fortunes, the Centre seems to be having trouble keeping its subsidies under check. After extending the period of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) at an annual cost of about ₹2-lakh crore, it is said to be looking to raise its outlay towards the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGA) from the budgeted ₹60,000 crore to ₹1-lakh crore this fiscal.

A report in this newspaper said that plans are afoot to raise the annual cash payout to farmers under the PM-KISAN scheme from ₹6,000 to ₹7,500, with an outlay of ₹1-lakh crore instead of the ₹60,000 crore budgeted. All this is in addition to the ₹2-lakh crore in fertilizer subsidies that is expected to be spent this year. While economising on outlays towards MGNREGA or PMGKAY may prove politically inexpedient, the government must seriously consider switching fertilizer subsidies from paying to industry to direct cash transfers to farmers, as a supplement to PM-KISAN payouts. India’s fertilizer subsidy outgo has bloated relentlessly in recent years, climbing from ₹1.28-lakh crore in FY21 to an estimated ₹2-lakh crore this fiscal, with actuals invariably overshooting budget estimates. Demand for conventional fertilizers such as urea and Di Ammonium Phosphate (DAP) has been growing at a fair clip, with farmers shying away from all government attempts to migrate them to organic farming methods or to nano products.

India’s import dependence for fertilizers has been rising, with tightening state controls (branding, distribution and pricing) deterring domestic output. This has exposed the fertilizer subsidy bill to the vagaries of global feedstock prices, geopolitical events and currency risk. With urea retailing at a fraction of the sale prices for other fertilizers, farmers have continued with extremely skewed nutrient use too. The durable solution to these problems lies in the government aligning the selling prices of urea and other fertilizers to more realistic levels based on their actual production or import costs. But with urea currently priced at less than a fifth of its production cost and phosphatic fertilizers at less than half of theirs, it would be too much to expect farmers to withstand the shock from such a re-adjustment.

Farmers can be shielded from this escalation, if the government does away with the current system of industry-routed fertilizer subsidies and moves to direct cash transfers of the subsidy into farmers’ accounts. Such transfers will arm farmers with the choice to cut back on fertilizer use, where possible, and spend on other essentials such as high-yielding seeds or mechanisation. With the PM-KISAN scheme already whittling down its beneficiaries to about 8 crore small and marginal farmers, the task of identifying beneficiaries has also been made easier. Even at an annual outlay of ₹1.50-lakh crore, the scheme could deliver a cash benefit of over ₹18,500 per farmer, far higher than the PM-KISAN payout.

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