Direct Transfer of Subsidies in Fertilizers: Issues and Challenges for Supply Chain

Subsidies are necessary evils in our economy and more so in fertilizers. In the present scenario, the Government subsidizes manufacturers of fertilizers to ensure that the end product is affordable for farmers. The quantum of subsidy that manufacturers receive is the difference between their normative cost of production/ Import and the subsidized Maximum Retail Price (MRP)that fertilizers are sold at. India is the 3rd largest producer and consumer of fertilizers in the world and fertilizer contributes to 40-50 percent of agricultural productivity. At Rs 70,967 Cr during FY 2014-15 (RE),fertilizer subsidy is the second major subsidy element after Food subsidy followed by Petroleum subsidy. A subsidy, by its very nature, introduces two or more prices for the same good, and createsincentives for pilferage and diversion. As a result, the underprivileged suffer the most. Ensuringthat goods move in the supply chain at market prices can minimize the incentives for diversion