The Hindu Business Line : Subsidy dilemma

It is not the farmers who receive the subsidy but industry, which is compensated for high input costs in which efficiency and merit of producers does not matter as much as it ought to.

The bargaining over how much subsidy the Centre should bear on fertiliser in the next financial year has begun. Urged on by producers, the Fertiliser Ministry has asked for Rs 50,000 crore, more than twice what was budgeted for the current year; the Finance Ministry is hardly likely to grant all of that and, as usual, neither the Finance Ministry nor the fertiliser producers will be happy at the end of the exercise. Neither party is, of course, the culprit. The rocketing p rice of crude oil, whose effect has inevitably wound its way to its various products to push up the cost of manufacturing fertilisers, has made a mockery of the current fertiliser price structure. What farmers get to pay for urea, for instance, is now a small fraction of what it costs to produce it, regardless of whether the feedstock is natural gas or naphtha. The problem for the fisc is that all farmers, regardless of whether their holdings are one hectare or a hundred, are eligible for subsidised fertiliser. Worse, it is not the farmers who receive the subsidy but industry, which is compensated for high input costs based on a complex formula in which efficiency and merit of producers does not matter as much as it ought to.

To the Finance Minister, Mr P. Chidambaram’s credit, he did see the inequity in the dispensation and his Budget of 2007 did promise to provide the subsidy direct to farmers. That plan would have delighted every small farmer because the current year’s subsidy of Rs 47,000 crore, if equally divided over the estimated 11 crore farmers, results in a handsome handout for each; those with just a hectare could have bought all the fertiliser they need at international market prices without having to put down any money of their own. On top of that, they can choose the right mix of fertiliser their land and crop need unlike in the current subsidy framework that entices them to overuse urea, and blight crop yields. It is a shame that Mr Chidambaram can find no “political consensus” behind the idea. His opponents obviously are backing the interests of those other than the 8 crore small farmers and deserve to be sidelined or ignored.

Identifying all cultivators individually and furnishing them cash is no easy task, but the cost of not doing so is bound to be increasingly higher in terms of subsidies for the government. The industry will continue to have no incentive to become more efficient and, in the end, small farmers, who clearly need better government support than they do today, will find their burden no lighter. Having recognised that subsidies are going to those that do not merit them, the Prime Minister has the responsibility to effect the change for the better.

Related Stories:
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Subsidy dues: Fertiliser sector may get Rs 5,000 crore more

More Stories on : Editorial | Fertilisers

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