Saturday March 24, 02:58 AM
Card trick
|
|
Is it happening at last? India's fertiliser subsidies have mocked all reformist talk on public finance for a decade and a half. Now, the government appears close to deregulating urea, replacing the current subsidy regime with direct payments to farmers. The current policy is warped because it subsidises fertiliser producers and not consumers. This has led to gold-plating of investments, higher costs and ever increasing Budget allocations. Small farmers were supposed to gain from the policy-they haven't. The distortion in market prices has also led to the wrong mix of fertilisers being used, and impacted the fertility of land, especially after the government decontrolled phosphatic and potassic fertilisers. Most recent numbers show that payments on urea subsidy currently runs to around Rs 11,503 crore while concessions on decontrolled fertilisers were just about half that amount. Initial results also show that that earlier efforts to curtail urea subsidies- clipping the cost-plus retention price scheme by a group-based new pricing scheme, being enforced in three stages since 2003 -have not been very effective. The shift to a direct subsidy regime should clear the huge backlog of unpaid subsidies that have hurt the balance sheets of companies and, more important, help stimulate more investment in this now stagnant industry. The introduction of smart cards for direct payment to farmers will make for better targeting and therefore reduction of subsidies. Crucially, it will also, by pegging subsidies to consumption levels, weed out rich farmers who were never the intended beneficiaries of subsidies. Smart cards should also help shift the present product based subsidy regime to a more effective nutrient-based system-this was recommended by the Task Force on the Balanced Use of Fertilisers. Once the pilot scheme on smart cards in three districts succeeds, the same idea should be applied to the direct delivery of other subsidies like those on food, education, health and power. If all of that works, government subsidies may actually start doing what they are supposed to.
|
