Barriers to Direct Benefit Transfers for Fertilizer Subsidy

The Indian government's fertilizer subsidy is the second-largest after the government food subsidy. The Indian government proposed to bring the fertilizer subsidy under the Direct Benefit Transfer (DBT) program to streamline its distribution, plug leakages and bring transparency to the system. Direct Benefit Transfer in Fertilizer (DBT-F) in its current form is a modified subsidy payment system, where the government pays the subsidy to fertilizer companies only after fertilizer retailers have sold fertilizer to farmers or buyers. The subsidy isn’t directly credited to farmers in their bank accounts owing to certain challenges.

This note highlights the major barriers to distributing fertilizer subsidy through cash transfers and in-kind transfers, which include:

• Lack of a defined and designed beneficiary database, and entitlements to target beneficiaries. 
• Financial burden on farmers to pay upfront for fertilizers.
• Inadequate banking network.
• Issues in pricing policy of urea.