A farmer holds a millet plant for a photograph in a field on the outskirts of Bengaluru, India. (Photographer: Dhiraj Singh/Bloomberg)

Fertiliser Makers Expect Direct Subsidy Transfer Benefits From Next Year

Real gains from the direct benefit transfer of fertiliser subsidy, aimed at plugging losses and fast-tracking payments, are expected to start flowing in from next year.

The first phase of the pilot rolled out on Oct. 1 faced problems such as difficulty with authenticating farmers’ identity, poor internet connectivity and server issues, delay in recognition of stock.

“In the first seven months of the pilot, we have Rs 100 crore due but haven’t received it. But we know that once everything is in place, we will get the dues in seven days,” said A Vellayan, chairman at Murugappa Group, parent of fertiliser maker Coromandel International Ltd. The company is budgeting a longer cash-flow cycle for the first half of the ongoing financial year. “The big benefits of DBT will come in 2019 and 2020. The pain will come in 2018.”

The Cabinet Committee of Economic Affairs yesterday cleared the proposal of the Department of Fertilizers along with its decision to extend the urea subsidy till 2020. The government increased fertiliser subsidy to Rs 70,080 crore for 2018-19 against the revised estimate of Rs 64,974 crore in the ongoing financial year. That accounts for about a quarter of overall subsidy estimates in the Budget.

The direct benefit transfer for fertilisers differs from the one implemented for LPG subsidy. For fertilisers, payment would not be transferred to a farmer’s bank account but to makers and importers on actual sales made by a retailer. This would set right some of the challenges faced by both the industry and the government such as diversion of subsidised urea for industrial use, delay in subsidy payments, skewed usage of nutrients and even smuggling to neighbouring countries, ICRA Ltd. said in a report.

Under the outgoing system, the company is eligible for subsidy payment after submitting invoices prepared on the basis of receipts at the district-level warehouses, said Abhay Baijal, chief financial officer at Chambal Fertilizers. That typically took 45-60 days. Under the direct transfer, the retailer will record the transaction on a point of sale machine authenticated with biometric information of the farmer, he said. “The fertiliser maker will be entitled to get 100 percent subsidy in seven days.”

Vellayan said setting up retail centres will help improve compliance. “The government is pushing all companies to set up retail centres and that is the only way” to go, he said.