Subsidy as a percentage of the GDP has been decreasing in India. The fertiliser subsidy helps farmers grow crops at a lower cost and the consumers who pay a lower price for food.

In his article, ‘Unshackling the fertiliser sector’, (FE, December 11), Dr Ashok Gulati says that the Indian fertiliser space in a mess because of rising subsidies, lagging investment, unbalanced use of fertilisers and diversion of urea for other uses, among other things, which he attributes to administered pricing and subsidy costs. Dr Gulati advocates the increase of urea prices or cash transfer of the fertiliser subsidy to farmers. This, he expects, will save money. He also wants the deregulation of the fertiliser sector.

The reason that the Indian fertiliser industry is in trouble is the non-release of subsidy by the government. What about the farmer? The farmers are being 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 have been reduced to becoming an endangered species, with only the farmers’ fertiliser co-operatives like the IFFCO remaining as the saving grace in this unholy mess. Expectedly, industry vociferously argues in favour of the subsidy collection being transferred 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. Its reasons are different from those being offered though. Also, farmers would certainly not find this acceptable without a legal framework first securing 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 across the country make an optimum ratio for India irrelevant to any particular state. Prof. Ramesh Chand of the 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 going by the normative ratio. 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, India should encourage the use of phosphorus and potassium rather than curtail the use of nitrogen.

Many economists have also held that India would save money by shifting to cash transfers, which may or may not be incorrect. However, the fertiliser policy should not be about saving money but about increasing prosperity and productivity. Over all, per hectare fertiliser use in India is much lower than in the rest of the world. The consumption of nutrients in China in 2011 was reportedly at 399.8 kg per ha of arable land against India’s 164.8 kg per ha. Similarly, yields vary. Presuming 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 pointed out that thousands of truckloads of fertilisers are smuggled out of the country annually, despite the shored up vigil at the borders. Also, there is diversion of fertilisers to other uses. These cannot happen without the active participation of the industry or their distributors and certainly cannot be the reason for moving to cash transfers. It is a matter of calling the vigilance authority to account.

Should India decide to shift to cash transfers of the fertiliser subsidy, retail prices of fertilisers will invariably be deregulated. This is a worrisome proposition for the farmers because fertiliser prices will continue to rise and the cash transfer per farmer per hectare will not keep pace with the increasing cost of fertilisers. It is 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 it can be approved.

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, therefore, be ratified first. 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 are threatened. Farmers must have a choice. Additionally, cash transfers can allow for variable distribution of resources to achieve equitable growth and could also be WTO compatible. Questioning the farmers ability to make wise choices and suggestions that all cash received will be spent on liquor is preposterous. Only with the farmer’s participation can a repeat of farm policy mistakes be avoided.