Direct cash subsidy on fuel, fertilizers by 2012

“To ensure greater cost efficiency, better delivery”

Seeking to address the issue of subsidies not reaching the targeted groups, Finance Minister Pranab Mukherjee on Monday proposed to provide a direct cash subsidy on fuel and fertilizers to the poor from March, 2012.

“To ensure greater cost efficiency and better delivery of kerosene and fertilizers, the government will move toward direct transfer of cash subsidy for people below poverty line (BPL) in a phased manner,” Mr. Mukherjee said during the presentation of the budget. The system would be in place by March, 2012, he added.

A task force headed by the former chief of Infosys, Nandan Nilekani, who is now Unique Identification Authority of India (UIDAI) Chairman, is working out the modalities for the proposed system, he said. It comprises Secretaries from the Ministries of Finance, Chemicals and Fertilizers, Agriculture, Food, Petroleum and Rural Development.

“The interim report of this task force is expected by June this year,” he remarked.

At present, the government provides kerosene at subsidised rates to BPL families through the Public Distribution System (PDS). Furthermore, LPG is provided at a subsidised rate to households. As regards fertilizers, the government provides subsidy to companies so that farm inputs, which include urea and imported fertilizers, can be provided to farmers at cheaper rates.

The need to set up the task force arose in view of overwhelming evidence that the current policy is resulting in waste, leakage, adulteration and inefficiency. Therefore, it is imperative that the system of delivering the subsidised kerosene be reformed urgently, the government said.

Besides designing an IT framework, the task force will align the systems with the issuance of the UID numbers and suggest changes in the administration and supply chain management. The recommendations of the task force will be implemented on a pilot basis by the Ministries concerned and the final report will include the results of such projects.

A new policy on providing subsidies on fertilizers on the basis of their nutrient composition could soon be extended to urea, one of the most widely used fertilizers, Mr. Mukherjee said. “Nutrient-based fertilizer policy for urea is under consideration.” The nutrient-based subsidy (NBS) regime is expected to promote balanced fertilization and consequently increase agriculture productivity in the country through higher usage of secondary and micro-nutrients.