The proposed policy of direct transfer of fertiliser subsidy to farmers is misconceived and inappropriate, according to a study by scholars of the Indian Institute of Management-Ahmedabad (IIM-A).
The study has discounted several common notions about fertiliser subsidy, including one that the bulk of it is cornered by large farmers.
The general perception that one-third of the subsidy goes to the industry, which is used as a conduit for channeling the subsidy to farmers, is not well founded, it points out.
The study has, however, upheld the impression that the flow of fertiliser subsidy is concentrated on a few states, notably Uttar Pradesh, Andhra Pradesh, Maharashtra, Madhya Pradesh and Punjab as well as on a few crops, mainly rice, wheat, sugarcane and cotton.
The study, ‘Fertiliser subsidy in India: Who are the beneficiaries?’, conducted by two IIM Professors — Vijay Paul and Hrima Thaker — examines various aspects of distribution of fertilisers, especially in the post-reform period. The total annual subsidy on fertilisers has surged 17-fold — from Rs 4,389 crore in 1990-91 to Rs 75,849 crore in 2008-09, during the period. As a percentage of the gross domestic product (GDP), this amounts to an increase from 0.85 per cent to around 1.52 per cent.
The report of the study disfavours the proposed government policy initiative to give fertiliser subsidy directly to farmers, instead of routing it through the industry, as at present. This proposal was announced by former finance minister P Chidambaram and subsequently reiterated by his successor Pranab Mukherjee in the successive Budgets presented by them.
The IIM report points out that the move is based on the misleading assumption that a third of the fertiliser subsidy goes to the fertiliser industry.
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“The policy of direct transfer of subsidy to farmers is neither desirable nor practically implementable,” the report asserts. It would be difficult to ensure that direct transfer of subsidy to millions of farmers is actually used by them for buying only fertilisers and there are no leakages. “If the subsidy is not used for fertiliser, it may adversely affect agricultural production in the country,” it cautions.
On the equity issues concerning disbursement of fertiliser subsidy, the study has found that the subsidy is quite fairly distributed among farms of different sizes. “Small and marginal farmers have a larger share in fertiliser subsidy in comparison to their share in cultivated area,” the study finds out. This is because about 52 per cent of the total fertiliser used in the country in 2001-02 was consumed by small and marginal farmers. Besides, over 77 per cent of the gross cropped area of marginal holdings (smallest farm size) was under fertiliser use, against 50 per cent in the case of large holdings.
The study notes that per-hectare subsidy on marginal farms is more than double that on large farms. “The average subsidy was the highest (Rs 916.2 per hectare) on marginal farms and the lowest (Rs 405.8 per hectare) on large farms,” the study reveals. The share of marginal farmers in the total fertiliser subsidy was the highest (28.3 per cent), followed by small farms (23 per cent). It was the lowest (6.3 per cent) on large farms.
However, state-wise distribution of fertiliser is skewed. More than half of the total fertiliser subsidy is cornered by five top fertiliser consuming states — Uttar Pradesh, Andhra Pradesh, Maharashtra, Madhya Pradesh and Punjab. These states grow fertiliser-intensive crops, such as rice, wheat, cotton and sugarcane.
But, over a period of time, the share of these states in the total fertiliser use is declining. It fell from about 60 per cent in 1992-93 to 55.8 per cent in 1999-2000 and to 54.5 per cent in 2007-08.
The other major beneficiary states are Gujarat, Karnataka, West Bengal, Bihar, Haryana and Tamil Nadu. Their share in total fertiliser subsidy increased from 31.7 per cent in 1992-93 to 36 per cent in 2007-08.
Among the crops, rice and wheat are major consumers of fertilisers and account for over half the total subsidy. “Rice is the biggest beneficiary of fertiliser subsidy, receiving 32.2 per cent of the total in 2001-02. Wheat was next with a 20.3 per cent share of fertiliser subsidy, followed by sugarcane (6.3 per cent), cotton (5.9 per cent).
Justifying the continuing of the fertiliser subsidy and the mode of its transfer to farmers, the study has concluded that a reduction in the subsidy is likely to have an adverse effect on farm production and income of small and marginal farmers, as they do not benefit from higher output prices but do benefit from lower input costs.