Economic Survey pitches for targeted fertiliser subsidy as welfare spending drops

India’s expenditure on major subsidies declined 22.1% in 2023-24 due to significant reductions in welfare spending on fertilisers and food, the Economic Survey said, prescribing better targeting of discounted nutrients to farmers.

While the Union government’s spending on fertiliser subsidies fell 24.6% in FY24, expenditure on food subsidies declined 22.4%, as per the Economic Survey tabled in Parliament on Monday.

Additional food subsidies instituted to protect vulnerable sections of the population also have been gradually decreasing, the Survey said.

The Economic Survey added that farmers should move to high-value produce such as fruits and vegetables, fisheries, poultry and dairy rather than depend on traditional stock such as rice, wheat, millets and pulses.

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The Survey said the government should use the ‘Agri Stack’ digital system to ensure that a fixed quantity of subsidized nutrients is sold to farmers identified based on parameters such as land ownership and the cropping pattern of a particular district.

“Agri Stack is the digital foundation set up by the government to make it easier to bring various stakeholders together to improve agriculture in India and enable better outcomes and results for the farmers by using data and digital services,” the Survey asserted.

“Agri Stack is now fairly well developed in the major states and can provide the right tool through which the fertiliser subsidy may be better targeted. This will ensure that subsidised fertilisers are sold to only those identified as farmers or authorised by the farmer,” it said.

The Economic Survey also pitched for direct transfer of fertilisers subsidy to farmers through e-RUPI, a digital payment mechanism.

Improve nutrient, water efficiency

Spending on fertiliser subsidies fell as global prices fell to levels seen before the Russia-Ukraine conflict, according to the Economic Survey. Prices of fertilisers had steeply increased in FY23 due to the war, prompting a higher outlay for subsidy.

In the interim Budget for for 2024-25 presented in February, the government allocated ₹1.64 trillion as fertiliser subsidy, as against revised estimates of ₹1.89 trillion for the preceding financial year. India subsidises water, electricity, and fertilisers for farmers.

The Survey suggested revising subsidy policies to support all major nutrients (nitrogen, phosphorus, and pottasium) by incentivising farmers to use a more balanced approach. 

Subsidies have significantly influenced farmer behaviour toward adopting better-quality seeds, encouraging the use of appropriate composition and quantity of fertiliser, and improving access to farm machines from custom hiring centres. 

That said, the increased use of urea is because of the existing subsidy structure, which has resulted in an imbalance in the use of major nutrients, affecting the efficiency of fertiliser use, soil health, yield, and environment, the Survey said.

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The Survey also suggested that investment in irrigation would enhance farmers’ income security, and called for better water utilisation using technologies such as drip and fertigation to raise productivity and cut water and fertiliser use by almost 50%.

India's irrigation efficiency is currently only 30-40% for surface water and 50-60% for groundwater.

The MSP effect

India’s expenditure on food subsidy declined from ₹2,72,501.70 crore in 2022-23 to ₹2,11,394 crore in FY24, according to the Economic Survey.

The government has extended the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), its free ration scheme, for five years until the end of 2028. 

This extension is projected to cost the exchequer about ₹11.8 trillion, driven by an anticipated 7-8% increase in the minimum support price of essential crops such as rice, wheat, and coarse grains, along with additional costs for transportation, storage, and other incidentals. 

MSP is the guaranteed price at which the government will procure crops from farmers.