Agricultural Finance

DIRECT BENEFIT TRANSFER IN FERTILIZER SUBSIDY

-Submitted to Dr. Nisha Bharti

Submitted by: Group- 5

Chinmay Kinage 21020242013
Pratik Khatke 21020242033
Rimjhim Prakash 21020242039
Rishi Verma 21020242040
Shruti Bhosale 21020242050
Suprio Saha 21020242054
Introduction-

Food is a fundamental necessity for human survival. To fulfill the basic production levels required
to feed the vast population in our country and support agriculture, the Government of India offers
subsidies. These subsidies are provided on various products like agri-inputs such as seeds,
fertilizers, etc., or the produce or a blend of both. There are different models of subsidy payments
adopted according to the convenience of the policymakers and the receivers.

The fertilizer subsidy was introduced in 1967-77 by the Government of India. Considering that
fertilizers are a vital input for agriculture, ensuring their availability to the farmers was necessary.

Key Findings-

● Farmers can buy fertilizers and Maximum Retail Price (MRP) below the market base price
with the help of DBT. For example, Farmers can buy neem coated urea at Rs 5,922 per
tonne (rate fixed by the government), whereas the production cost for neem coated urea
comes around Rs 20,000 per tonne for the manufacturer.
● For non-urea fertilizers, MRP is fixed by the manufacturing companies; however, the
central government pays some subsidized amount on these fertilizers to ensure farmers can
buy at reasonable prices.
● After some changes in subsidy mechanism policy in March 2018, a new DBT mechanism
was introduced in which subsidy will be given to companies after actual sales happen to
the farmer by retailers. Anyone buying subsidized fertilizer is required to link the Adhar
card or Kisan credit Card with the PoS system made available at every fertilizer retailer.
● Currently, the central government policy is “no denial,” under which anyone, including
non-farmers, can buy subsidized fertilizers by just linking the Adhar card via the PoS
system. It allows bulk buying of subsidized fertilizers by unintended beneficiaries who are
not genuine or deserving farmers.
● According to the latest reports, due to the insufficiency of IT infrastructure, 60% of retailers
faced issues in managing sales effectively in peak periods. In this case, retailers sell
fertilizers manually and adjust the transactions after the sale.

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 ● According to reports, 92% of farmers are aware of the Adhar card and Kisan Credit card
requirement for buying fertilizers. However, 75 % of farmers came to know about this
prerequisite after arriving at the retailer outlet. They claimed that they did not receive any
information from any credible source. This indicates that the government needs to spread
awareness of subsidies-related schemes so that farmers can benefit from these schemes.

Background-

The DBT program for fertilizer subsidy was introduced by the GoI in the year 2016-17. Under
DBT, the government releases 100% subsidy on various fertilizer grades to fertilizer manufacturers
based on actual sales made by retailers to the beneficiaries through PoS devices. Retailers authorize
the sales through successful Aadhaar-based authentication of the farmers on PoS devices. Retailers
can also use a beneficiary’s Aadhaar enrolment ID along with Kisan Credit Card (KCC) or
Electoral Photo ID Card (EPIC) to confirm the sale if a farmer has not yet issued an Aadhaar
number after enrolling for it. This is the 2nd largest subsidy program of the Government. It involves
a budget of Rs. 83,466 Crs.

DBT in Fertilizers is much more complex than DBT in other schemes. The beneficiary is not
defined. (Currently, anyone is allowed to purchase fertilizer). Beneficiary entitlement is not
determined. The subsidy amount is more than twice of subsidized price. Multiple products like
Urea, P&K, etc., have varied subsidy amounts. Subsidy component differs plant or company-wise,
even for the same product.

Need of DBT

● DBT system of payment in fertilizer subsidies will strengthen the objective of the
Government of India to lower the farmer's agricultural input cost-effectively.
● The main motive of the DBT system of payment is to curb the diversion of fertilizers for
non-agricultural use.
● DBT system of payment will reduce the overall subsidy cost for the government of India
by reducing the diversion of fertilizer in the non-agricultural field.
● Before the DBT system of payment the scope for leakage was more, right from the point
of dispatch till the retailer system end .

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 ● DBT system of payment will stop Urea being smuggled to Nepal and Bangladesh.
● DBT system of payment will reduce the possibility of Fertilizer being super- subsidised
for example the retail price of urea increased hardly by 11% from Rs 4830 to Rs 5360 per
tonne since April 2010 whether the manufacturing cost of urea increased at higher since
april 2010.
● To stop the use of urea in other sectors such as by plywood or particle board makers, as a
cheap protein source by animal feed manufacturers or adulterant by milk vendors.

Implementation of DBT in Fertilizers-

Point of sales (PoS) procurement & deployment: more than 2.25 lakh PoS devices deployed across
the country.
Training Programmes conducted across India- 9524. (Includes training of Master trainers,
wholesalers, retailers) Refresher training programs are still taking place.
States have set up District and State level DBT coordination committees for easy accessibility and
monitoring it closely.
Training videos are bilingual for retailers and other participants, which are used extensively for
training purposes.
To handle and monitor the DBT system, 86 virtual servers and machines are deployed.
Lists of Do's & Don'ts for various stakeholders are provided to the participants. Letters are issued
by Chief Secretaries for the detailed action plan.

Current Status of DBT in Fertilizers-

With effect from October 2016, the Government of India (GOI) has implemented the Direct
Benefit Transfer (DBT) system in Fertilizers. Under the fertilizer DBT scheme, enterprises selling
fertilizers receive 100 percent subsidies on various fertilizer grades depending on actual sales made
by retailers to the beneficiaries. All subsidized fertilizers are sold to farmers and purchasers using
Point of Sale (PoS) devices installed in each retailer's store. Aadhaar Card, KCC, and Voter
Identity Card are used to identify potential beneficiaries.
The various States and Union Territories went live on September 1, 2017, and the Pan-India rollout
was finished in March 2018. The Department of Fertilizers has established a specialized Project
Monitoring Cell to manage DBT implementation thoroughly and adequately.

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A total of 24 State Coordinators have been chosen to oversee the continuing DBT efforts
throughout all states. The DBT in the Fertilizer Scheme necessitated the placement of point-of-
sale (PoS) devices in practically every retailer store and teaching potential shopkeepers how to use
them. Too far, Lead Fertilizer Supplier (LFS) has held 10878 training sessions around the country.
2.26 million point-of-sale (PoS) devices have been installed throughout all states.
Advantages-

● Significant impact on the prevention of "leakage and diversion." and Reduction of illegal
cross border sales.
● Improved Tracking Through iFMS and improved Supply
● Provides transaction visibility at the level of buyers and Overcharging has Reduced
● Creates Aadhaar seeded database of beneficiaries which will provide Unlimited
Opportunities for the Government to reach Rural India.
● Once the system functions fully, it will lead to better soil health management, balanced
fertilization, and better productivity.
● Operational costs will reduce for the Government, owing to the elimination of middlemen
and also phasing out of fair price shops. This will aid the Indian economy’s growth in the
long run.

Disadvantages-

● Poor Internet Connectivity

● Available even for non-farmers
● Different prices for all fertilizers
● Varying provision of production plant-wise subsidy
● Lack of effective grievance redressal system
● Farmers who do not have Aadhar cards use that of others'. Thus, it creates an information
gap.
● There is no upper-limit for the quantity one can buy.
● Biometric authentication issues
● Farmers generally do not carry their Aadhaar card when they visit retailers to buy fertilizer
● A lack of awareness among deserving beneficiaries.

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 ● Beneficiaries are not defined. (Currently, anyone is allowed purchase of fertilizer)
● Beneficiary entitlement is not defined.
● The amount of subsidy is more than double the subsidy price. (MRP will be a big burden
if it is transferred to the market price Since the farmers have to pay the market price in
advance).
● Multiple products (Urea, P&K etc) have varied subsidy amounts.
● Subsidy components vary plant / Company wise even for the same product.

A Way Forward

Over the years, GoI has made many reforms in the fertilizers subsidy in India. So, why are reforms
needed? Over the years, the distribution of fertilizer in India became prone to “leakages”. The
economic survey done in 2015-16 states that over 65% of the fertilizers do not reach the targeted
beneficiaries.

The government continued to reform its fertilizer subsidy distribution by including the fertilizer
subsidy under the Direct Benefit Transfer system (DBT) in 2016–17.

Despite improvement in the fertilizer distribution system, several challenges are yet to be
addressed :

● There is no proper database of fertilizers beneficiaries.

● There is no cap placed on the amount of fertilizer that a farmer can buy, and hence farmers
buy a lot more in amount irrespective of their need.
● The different levels of subsidy provided to the fertilizer manufacturing plants based on
their cost of production.
● The introduction of the PM Kisan programme has somewhat solved the lack of a database,
but data integrity is still a question.
● Capping the amount is the direct solution to our second challenge. Also, experts' regular
inspection of farmers' land and guiding them will help them to use the fertilizers accurately
and wisely.

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 ● The cost of production varies as the different plants use different gases to produce
fertilizers. GoI can regulate the gas usages and make it uniform for all the plants to use the
same gas. Therefore it would solve our third challenge.

Future Prospects:

● Enhancing connectivity through the BHARAT Net project.

● Providing incentives to dealers
● It can be effectively used to reduce over-dependence on NPK fertilizers in the
future.

The present mechanism of transferring the subsidy directly into the manufacturer accounts comes
in handy owing to the complex nature of fertilizer subsidy. Besides its advantages, this mechanism
has inherent weaknesses. For instance, dealers could easily fool illiterate farmers by charging extra
amounts than printed on the receipts. Moreover, it could be misused to divert the subsidy towards
the industrial use of fertilizers.

The economic survey in its report of 2018 advocated for providing subsidies directly to farmers'
accounts. This can sort out the loopholes in the present mechanism. Although a low percentage of
financial inclusion can lead to the exclusion of beneficiaries, it would be a beneficial step in the
long run.

Conclusion

The direct benefit transfer (DBT) has the potential to improve social welfare in society and
agricultural production. The introduction of DBT has helped save money by reducing the pilferage
of government funds. Additional infra-structural facilities and awareness of the DBT scheme
among farmers and other stakeholders is important. Despite improvement in the fertilizer
distribution system, several challenges are yet to be addressed