Urea prices increased by Rs 50 per tonne

NEW DELHI: The government on Thursday allowed an increase of Rs 50 per tonne in urea prices, although it maintained that the hike was not meant to lower subsidies but to move to a more efficient system.

The increase will translate into the cost of a bag of urea going up by Rs 2.50, the chemicals and fertilizers department said in a statement, and will be used to provide incentives to retailers to acknowledge that they had received fertilizer from the company.

The government has, however, opted not to increase urea prices immediately given the protests it may generate from political parties.

The hike approved by the Cabinet Committee on Economic Affairs on Thursday came along with a decision to pay subsidy to fertilizer companies only after an acknowledgement was received from the retailers. This acknowledgement will be tracked through an electronic system to check leakages from the system.

The new system is part of a shift towards rolling out a direct cash transfer mechanism for paying the subsidy directly to a farmer's bank account, which is seen to be more efficient. The current system where the payment is made to the fertilizer companies is seen to be prone to misuse and the new tracking mechanism is expected to help ensure that only "genuine sales" get subsidies.

Simultaneously, the CCEA also cleared pilot projects in 10 districts for direct cash transfer. Farmers in these districts will be tracked through their Kisan credit card, Aadhar number and their bank accounts and the payment would be made to them directly by the government. The farmers would be free to use the money for buying the fertilizer they need for their crops.

The system is also seen to be healthier as the subsidy volume often determines the choice of fertilizer.

In a statement, the government said, the pilot will be started towards the end of the year.

The government is looking at a direct transfer mechanism for food, fuel and fertilizer subsidies which are also expected to lower the burden and free more resources for spending on health and education.