India increases fertilizers subsidies but seeks to reduce excess use

Author: Deepika Thapliyal

2019/07/05

LONDON (ICIS)--India's government increased on Friday its fertilizers subsidies by 14% but also emphasised that farmers should go back to "zero budget farming".

Paddy fields in India's Nagaland state. Source: Annie Owen/Robert Harding/Shutterstock

Finance minister Nirmala Sitharaman said in her Budget speech that zero-budget farming could help double farmers' income.

Zero budget farming is a method of farming where the cost of growing and harvesting plants is zero.

Under the method, farmers substitute fertilizers and pesticides with locally-available and natural materials such as cow dung and cow urine, jaggery, and pulse flour, among other things.

"We need to replicate this innovative model. We will invest widely in agri [agricultural] infrastructure and support private entrepreneurship in driving value addition to farmers and those from allied activities too, like bamboo, timber, and for generating renewable energy”, said Sitharaman.

The zero budget farming method is aimed at aiding India's small and marginal farmers.

These farmers own or cultivate up to two hectares of land and constitute about 78% of India's farmers, and who often do not make enough money from their produce to even sustain themselves.

Budgetary allocation towards fertilizers subsidies has increased by nearly Indian rupees (Rs) 100bn ($1.45bn), the government said.

This increase is to account for inflation, the start-up of a new urea plant, and payment of pending dues of fertilizer companies from last year.

The fertilizer subsidy allocation has increased by 14% to nearly Rs800bn from the previous previous year.

“Technically, there is no subsidy increase if you look at inflation and all the other angles. The government’s approach is very interesting: They are clearing all urea due and then, in the next few years, we will see subsidies coming down,” said a fertilizers source in India.

Of this allocation, Rs536.29 crore is the urea subsidy and Rs263.67 crore set towards nutrient based subsidies.

In March 2018-May 2019, a total of 61m tonnes of fertilizers have been sold under the so-called direct benefit transfer (DBT) scheme.

DBT has helped reduce fake and duplicate beneficiaries of fertilizer subsidies, said Sadananda Gowda, minister for chemicals and fertilizers.

“2020 will be all about DBT,” said the source.

DBT for fertilizer subsidies is one of the largest subsidy reforms that the country is rolling out.

Under the scheme, farmers will continue to buy fertilizer from the retailer at a subsidised rate and the transaction will be recorded on point of sale (PoS) machines.

The government will then release the subsidy to manufacturers only after checking the sales data uploaded on the website by the retailers, in order to prevent any misuse of subsidies.

The government is also looking to pay the subsidy amount directly to famers’ bank accounts under the second phase of DBT implementation.

($1 = Rs68.51)

Focus article by Deepika Thapliyal