Preposterous suggestions that farmers are incapable of spending funds judiciously need to be dismissed and the farmer given the right to decide how to finance their farms.

Dr Ashok Gulati’s assessment that India has landed its fertiliser industry in a mess because of rising subsidies, lagging investment, unbalanced use of fertilisers and diversion of urea for other uses, among other things. He blames it all on administered pricing and subsidy costs and advocates the increase of urea prices or cash transfer of the fertiliser subsidy to farmers to save money and deregulating the fertiliser sector (‘Unshackling the fertiliser sector’, FE, December 11).

The Indian fertiliser industry is in trouble because the government has not released the subsidy, even as farmers are forced to buy both diammonium phosphate (DAP) and urea at a premium of 33 per cent in black markets across India. If the industry is in trouble, farmers are the endangered species. Farmers’ fertiliser co-operatives like IFFCO are the only saving grace in this unholy mess. Expectedly, industry is vehemently advocating the transfer of subsidy collection from the government to the farmers. The Bharat Krishak Samaj fundamentally agrees with the industry and economists on the broader idea of targeted delivery of fertiliser subsidy directly to farmers in cash but not for the reasons given. Nor would the proposal be acceptable to farmers without a legal framework to first secure their rights.

One reason touted for the need of cash transfer for the fertiliser subsidy is to control the widely accepted myth of the imbalanced use of fertilisers due to the overuse of urea (nitrogen). The idea of the NPK (nitrogen, phosphorus and potassium) use ratio of 4:2:1 for the whole country was formed in the 1950s, after fertiliser trials in seven states. Large variations in soil type and fertility across regions, districts and states make an optimum ratio for India irrelevant to any particular state.

Dr Ramesh Chand of the National Centre for Agricultural Economics and Policy Research (NCAP) has conclusively established that only six states (Andhra Pradesh, Assam, Bihar, Haryana, Jharkhand and Punjab) use excess nitrogen, while phosphorus is used in excess in five states (Andhra, Gujarat, Punjab, Tamil Nadu and Karnataka), even when the normative ratio is accepted. Despite shortcomings, policy decisions and discussions continue to be based on the flawed NPK ratio. In fact, the deficiency of nitrogen is a more serious problem than the excess use of nitrogen and, as a matter of policy, the country should encourage the use of phosphorus and potassium rather than curtail the use of nitrogen.

Second, many economists have claimed that India would save money by shifting to cash transfers. That is unlikely to happen. In any case, the fertiliser policy should not be about saving money but about increasing prosperity and productivity. The per hectare (ha) fertiliser use in India is much lower than in the rest of the world. For example, the consumption of nutrients in China in 2011 was reported to be 399.8 kg per ha of arable land, while in India it is 164.8 kg per ha. Similarly, yields vary. Presuming that the second green revolution is successful, as farming gets more intensified, fertiliser consumption will increase. Once all farmers are registered for cash transfers, the quantum of subsidy outgo will also increase.

Additionally, it is argued — unacceptably, in my opinion — that thousands of truckloads of fertilisers are smuggled out of the country annually despite the increased vigil on the borders. As far as the diversion of fertilisers to other uses is concerned, it cannot happen without the active participation of the industry or their distributors. Can this be a reason for moving to cash transfers? Certainly not. It is for the vigilance authority to check who is involved in such diversion. Should India decide to shift to cash transfers of the fertiliser subsidy, retail prices of fertilisers will invariably be deregulated. Farmers are scared that, in such a scenario, even as fertiliser prices continue to rise, the amount of cash transfer per farmer, per hectare will not keep pace with the increasing cost of fertilisers, like the crop MSP that fails to fully factor in the cost of cultivation.

In the absence of timely payment of subsidy due to problems like inadequate budgetary provisions, resource-poor farmers will face cash-flow problems. The cost of fertiliser is about one-third the cost of production for major irrigated crops and farmers will be forced to take expensive credit to purchase fertilisers. An administered formula will have to bear careful scrutiny before approval.

Policy must be designed to include those at the bottom of the pyramid. At present, when tenants (estimated informal tenants comprise 20 per cent of the total number of farmers) purchase fertilisers, they benefit from the fertiliser subsidy. Should the government decide to transfer subsidy in the form of cash, millions of tenants will be denied their portion of fertiliser subsidy because their names are not registered in land records or because they do not have bank accounts. The land records must first be ratified. Transferring funds to over 100 million identified farmers, who are yet to be documented and millions without bank accounts, will be a daunting task. Subsidy as a percentage of the GDP has been decreasing over many years in India. The fertiliser subsidy helps farmers grow crops at a lower cost, enabling consumers to pay a lower price for food.

Although there are substantive reasons to shift to cash transfers, when farmers want to produce and use their own farmyard manure as fertiliser, they do not get incentives and are not reimbursed for the costs. Farmers are forced on to a path of over-dependence on chemical farming because only industrial fertilisers are subsidised. This is counterproductive, since ecological and economic sustainability is threatened. Farmers must have a choice. Additionally, cash transfers can allow for variable distribution of resources to achieve equitable growth and they would also be WTO compatible. Many preposterously claim that farmers will be unable to decide well for themselves and will waste the cash received on liquor. Only a farmer can dispel such fears and only with the farmer’s participation can a repeat of farm policy mistakes be avoided.