Is extending direct benefit transfers to fertilizers a boon or bane?

There are signs of improvement for all stakeholders; however, it’s still early days as DBT is not yet fully implemented both in terms of geography and its offerings.

The government continues on its path of digitizing the rural economy by introducing direct benefit transfer (DBT) of fertiliser subsidies in five more states next month. Last month, the DBT facility for fertiliser subsidies was rolled out in 14 states.

Fertiliser subsidy at Rs 70,000 crore annually is the second largest subsidy element in the budget, after food subsidy. However, fertilisers like many other subsidies have seen pilferages with money reaching the wrong hands.

But has extending DBT to the fertiliser sector started to impact the lives of farmers, retailers, producing companies and the government?

There are signs of improvement for all stakeholders; however, it’s still early days as DBT is not yet fully implemented both in terms of geography and its offerings.

As of now, there are 12 states that are yet to see DBT being rolled out. The current five states that are selected for a rollout are big agricultural states of Punjab, Haryana, Chhattisgarh, Madhya Pradesh and Andhra Pradesh which will go live in December. The remaining states are expected to see DBT rollout in January 2018.

Government officials say that the difficult phase is over and the software is working better with teething issues being resolved on a daily basis.

But this is just the first phase of implementation, one that analysts call a data collection phase. DBT in fertilisers is different from that of cooking gas. In the case of the latter subsidy is directly transferred to the bank account of the consumer who buys gas cylinders.

In the case of fertiliser, the government is transferring subsidy to companies after checking retail sales data captured through the Point of Sale (PoS) machines. The transfer of fertiliser subsidy directly into farmers’ bank account will be taken up in the second phase.

As the prices of fertilisers, especially complex fertilisers, are high, farmers might not be able to make an upfront payment. Thus, the government sells it to them at a subsidized price and provides the subsidy directly to the company that produces these fertilisers.

As for the farmers who purchases fertilisers from the retailers they have to first give details of their Aadhaar card, which essentially is helping the government to collect data on purchasing pattern and size of the land of the farmer. This move has helped curb hoarding of fertilisers by some of the bigger farmers or other industrial players who use subsidised fertilisers for their manufacturing process.

Details of the farmers’ purchases are recorded in the Point of Sales (PoS) machines. This detail will subsequently be mapped with a soil card and provide guidance on the use of fertiliser. This is expected to improve the health of the soil and subsequently help improve productivity and farmer income.

Since every kg of fertiliser sold at the retailer’s end now has an address, retailers who used to either help hoarding, sold spurious fertilisers or sold it to industries are shutting shop. A survey done in six districts found that nearly 300 retailers did not renew their licences after implementation of DBT.

While the benefit of DBT is visible there are many challenges ahead. First, the implementation of phase 2 of DBT which will help farmers see the real benefit and help the government plugging the leak.

Second, the infrastructure support system. A PoS needs to be functional at all times, which means every village has to have electricity and internet connection; this is especially true during cropping seasons. And finally packaging it all with the help of soil cards and agronomists to micromanage the agriculture output.

While the work is done in DBT is credible and will address the farmer’s woes at the manufacturing end, the move will only aggravate the farmer’s trouble at the market end.

Higher productivity will only lead to lower prices of the produce. Unless there is a mechanism in place to ensure better prices to the farmer DBT will only increase the farmer’s agony; the only difference is this time it will be more transparent. If this leads to new rounds of loan waivers the benefit of DBT will come to naught.