Question- Discuss the fertilizer subsidy mechanism in India, highlighting its potential implications for farmers and the agricultural sector. Elucidate the functioning of the Direct Benefit Transfer (DBT) system in fertilizers and assess its effectiveness and challenges.
Fertilizer subsidies play a crucial role in India's agricultural sector, reducing the financial burden on farmers by offering fertilizers at prices lower than their market rates. The subsidy covers two major types of fertilizers – Phosphatic and Potassic (P&K) and Urea, with the government allocating different subsidy amounts for each.
Mechanism of Fertilizer Subsidy:
Farmers buy fertilizers at Maximum Retail Prices (MRPs) that are fixed below their regular market rates. For Urea, the government sets the MRP, with the cost differential between this and the actual cost being provided as subsidy. For non-Urea fertilizers, companies set the MRPs, and the government provides a flat per-tonne subsidy to ensure reasonable pricing. The subsidy, although ultimately benefiting the farmers, goes to the fertilizer companies.
Direct Benefit Transfer (DBT) System:
In 2018, the government introduced the DBT system, which directly transfers the subsidy to the companies only after actual sales to farmers. Each retailer has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal. The sale gets registered on the platform after the buyer provides his/her Aadhaar or Kisan Credit Card number, and the quantities of individual fertilizers purchased are recorded.
Implications and Challenges:
The fertilizer subsidy and DBT system ensure that farmers get fertilizers at affordable prices, promoting agricultural productivity. However, there are challenges. For one, this system may inadvertently incentivize the overuse of fertilizers, potentially harming soil health and the environment. Furthermore, the DBT system, while preventing leakages, may be challenging for those farmers who lack the necessary technological literacy or do not have access to Aadhaar or Kisan Credit Cards.
Balancing the need for affordability and environmental sustainability is key. Along with the subsidies, the government should promote sustainable farming practices and soil health. Additionally, efforts should be made to ensure all farmers can access and navigate the DBT system efficiently, with special assistance provided to those who might struggle with the technology.
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