Budget 2011: Direct payments to replace inefficient fertiliser subsidy

The government has set a March 2012 deadline for kicking off direct payment of fertiliser subsidy to farmers below the poverty line, taking a leap of faith to promote farm sector growth.

The cash transfer is likely to be governed by the modalities set by a task force led by Nandan Nilekani that is expected to file its report in June. Currently, the subsidies are paid through fertiliser companies.

“As far as we are concerned, this is a dream announcement,” said US Awasthi, managing director of fertiliser cooperative Iffco. Direct transfer of subsidy will ease working capital problems faced by the industry due to delayed subsidy payments by the government.

The Budget has set aside Rs 49,997.87 crore towards subsidy payments, much lower than last year’s revised figure of Rs 54,976.68 crore.

“The real test will be if the government would extend direct payments in the case of food subsidies. There is no galvanising blueprint for the sector,” said Ashok Gulati, Asia head of IFPRI, a think-tank.

The Budget has accorded infrastructure status to cold storage and all post-harvest technologies to cut wastage. Currently, post-harvest losses are estimated at Rs 50,000 crore per annum due to poor storage practices.

Modern storage infrastructure such as silos have been made eligible for “viability gap" funding. The FM has reduced customs duty on import of all cold storage equipment to 2.5% and exempted cold storage conveyer belts and refrigeration panels from excise duty.

“There is an estimated 32 million tonne shortage in storage capacity, requiring investments of over Rs 10,000 crore,” said Sanjay Kaul, managing director and chief executive of warehousing firm NCMSL.