Centre Seeks to Cut Fertilizer Subsidy Burden

The Indian government is actively seeking ways to reduce fertilizer subsidy expenses in order to ease the pressure on government finances. Currently, the government is facing high international prices, which have pushed up the Center's subsidy bill for essential farm input.

Although the budgeted amount is expected to decrease from a record INR 2.25 lakh crore this year to INR 1.75 lakh crore next year, it still represents a significant financial burden. In the short term, the focus is on reducing the cost of gas, a critical input in the production of urea, the most commonly used fertilizer in India. The government has successfully achieved this goal through pooling demand, which has resulted in bids coming down from over $30 a unit to around $18.

The finance and fertilizer ministries see this as a key challenge, as even public sector entities such as GAIL were found to be uncompetitive in the bidding process and have been quoting high prices for contracts.

In the meantime, the focus is on improving the delivery of subsidies, but direct benefit transfers or cash payments into bank accounts are being ruled out. Instead, the government is working with states to implement a mechanism using point-of-sale machines.

The plan is to get the land-holding details of farmers and fix the quota for fertilizer based on that information. Each farmer will receive their quota at a subsidized rate, and anything above that will be provided at market rates.

Several states, such as Karnataka, Assam, and Maharashtra, have come forward for pilot projects in one district each, but officials recognize that more groundwork is required to ensure that the data for the test runs is foolproof and no one is excluded from the process. The government is hoping that this mechanism will not only reduce the cost of subsidies but also improve the nutrient balance in the fertilizers being used by farmers.

The Indian government is taking several measures to reduce fertilizer subsidy expenses and improve the efficiency of the system. The focus is on reducing the cost of gas in the short term and improving the delivery of subsidies in the medium term through the use of point-of-sale machines.

The government is working with states to ensure a smooth implementation of this mechanism, which will not only reduce costs but also improve the quality of fertilizers being used by farmers.