Fertiliser subsidy is queering the pitch for agricultural sector's growth

The finance minister has announced an allocation of Rs 1.52 lakh crore for agriculture and allied sectors in FY 25, constituting 3.1% of the total expenditure of Rs 48.2 lakh crore. This marks only a slight increase from Rs 1.4 lakh crore in the revised estimate (RE, FY24).

It hardly adjusts for inflation. Additionally, Nirmala Sitharaman stated that over the next two years, one crore farmers will be introduced to natural farming practices.

However, this raises concern, given the budget of Rs 1.64 lakh crore earmarked for fertiliser subsidy in FY25. This subsidy allocation surpasses the total budgetary allocation for agriculture and allied sectors in FY25. Such a discrepancy prompts critical reflection on fertiliser subsidy and raises questions between promoting sustainable farming practices and subsidising granular fertilisers, especially urea, which can have adverse effects on soil health.

It is noteworthy that granular urea, as currently applied in fields, is not fully utilised by crops. Estimates of nutrient use efficiency (NUE) indicate only around 35% of nitrogenous urea is absorbed by crops. Since temperature is high, most of the urea will volatilise as ammonia (NH3), nitrogen gas (N2), and nitrous oxide (N2O) gases. Ammonia, upon oxidation, transforms into nitrate (NO3), which is 273 times the carbon equivalence causing global warming. Besides, a portion of applied fertiliser nitrogen is leached into groundwater, rendering it non-potable due to high nitrate content.

When fertiliser subsidy was introduced in the 1970s, the ratio of grain yield to fertiliser application was 10:1. Over time, this ratio has dwindled to 2:1. One might question why our policymakers are reluctant to explore alternatives. Fertiliser subsidy should be transferred from ministry of chemicals and fertilisers to ministry of agriculture to ensure direct disbursement to farmers. This step, combined with deregulating prices of specific fertilisers, has the potential to encourage equitable pricing and usage, potentially leading to savings in subsidies.

The FM could also consider digitising the distribution process by providing electronic vouchers or coupons that can be used to purchase fertilisers from registered agri-input dealers. This will eliminate leakages and diversions.

According to the last two input-output tables of the country, around 20-30% of nitrogenous fertilisers meant for agriculture are being diverted elsewhere - unrelated industries like plywood and glass manufacturing or to neighbouring countries.

The Economic Survey 2024 underscored the pressing need for reforms in fertiliser administration. It presented two key policy recommendations. One WAS to leverage Agri Stack, a robust digital platform well-established in major states, to enhance targeting of fertiliser subsidies. Agri Stack enables precise identification of eligible farmers and regulation of fertiliser quantities based on land ownership and primary crops cultivated.

The other was adoption of E RUPI, on the lines of e-coupons, to digitally transfer flexible input subsidies directly to farmers' registered bank accounts. This subsidy can be utilised by farmers using authorised PoS machines to purchase fertilisers and other essential items like seeds and pesticides from authorised outlets.

However, for these reforms to succeed, it is crucial to integrate farmers' credentials such as Aadhar, mobile number, and bank accounts with all agricultural land owned by them.

(Gulati & Juneja are distinguished professor and fellow, ICRIER, respectively. Views are personal)

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