Reforming India’s Food and Fertiliser Subsidies
Kartavya Desk Staff
Syllabus: Economics
Source: IE
Context: With poverty levels now at historic lows (5.3%) and subsidy bills rising steeply, there is a growing policy debate on reforming India’s food and fertiliser subsidies to improve efficiency.
About Reforming India’s Food and Fertiliser Subsidies:
A subsidy is a financial support or incentive provided by the government to individuals, businesses, or sectors to make goods or services more affordable or to encourage desired economic activities. It helps lower the cost of production or consumption and is aimed at achieving social welfare, economic efficiency, or public policy goals.
Types of Subsidies:
• Direct Subsidy:
• Government provides cash transfers or direct payments to beneficiaries.
• Example: PM-KISAN income support to farmers.
• Indirect Subsidy:
• Government reduces the cost of goods/services via tax exemptions or price controls.
• Example: Subsidised foodgrains under NFSA, subsidised LPG cylinders.
Data points:
• Food Subsidy FY26: ₹2.03 lakh crore (source: Ashok Gulati article).
• Fertiliser Subsidy FY26: ₹1.56 lakh crore (source: Ashok Gulati article).
• Poverty Decline: Extreme poverty reduced from 27.1% in 2011 to 5.3% in 2022 (source: Ashok Gulati article).
• Current PDS Coverage: Free foodgrains given to 800 million people (source: Ashok Gulati article).
• Public Distribution System Reach: 84% households had ration cards in FY 2022–23, with 59% under BPL, AAY, or PHH categories (source: Economic Survey 2025).
• Gini Coefficient Improvement: Rural Gini coefficient improved from 0.266 in 2022–23 to 0.237 in 2023–24 (source: Economic Survey 2025).
Need for Reforms in Food and Fertiliser Subsidy:
• Poverty Trends: With extreme poverty falling to 5.3%, providing blanket subsidies to 800 million people is fiscally inefficient and fails to reflect actual poverty levels.
• Leakages: Despite digitisation (84% ration card coverage), PDS leakages and ghost beneficiaries persist (e.g., Jharkhand’s cancelled cards), leading to poor targeting.
• Nutrition Gap: Current PDS focuses heavily on cereals (rice, wheat) but neglects protein-rich and micronutrient foods, failing to address nutrition security.
• Fertiliser Imbalance: Overuse of nitrogen-based fertilisers (urea) and underuse of P and K have damaged soil health, leading to declining yields and soil nutrient depletion.
• Fiscal Pressure: High food and fertiliser subsidies crowd out capital investment in critical rural infrastructure like roads, irrigation, and storage facilities.
Initiatives Taken:
• For Food Subsidy: PM Garib Kalyan Anna Yojana (PMGKAY): Launched in 2020 to provide 5 kg free foodgrains per person/month to all NFSA beneficiaries during COVID and now integrated into NFSA provisions. Digitisation of Ration Cards: ~84% coverage through Aadhaar seeding and ePOS machines to improve targeting and reduce leakages. Strengthening TPDS: Adoption of Targeted Public Distribution System (TPDS) to better focus on BPL, Antyodaya (AAY) families for subsidised grains. Expanded PDS Commodities: Some states now supply pulses, edible oils, iodised salt via PDS to improve nutritional diversity beyond cereals.
• PM Garib Kalyan Anna Yojana (PMGKAY): Launched in 2020 to provide 5 kg free foodgrains per person/month to all NFSA beneficiaries during COVID and now integrated into NFSA provisions.
• Digitisation of Ration Cards: ~84% coverage through Aadhaar seeding and ePOS machines to improve targeting and reduce leakages.
• Strengthening TPDS: Adoption of Targeted Public Distribution System (TPDS) to better focus on BPL, Antyodaya (AAY) families for subsidised grains.
• Expanded PDS Commodities: Some states now supply pulses, edible oils, iodised salt via PDS to improve nutritional diversity beyond cereals.
• For Fertiliser Subsidy: Neem-Coated Urea: Mandatory coating to reduce black marketing and promote slow nitrogen release for better soil health. Nutrient-Based Subsidy (NBS) Policy: Subsidy linked to nutrient content (N, P, K, S) to encourage balanced fertiliser use (non-urea fertilisers). Direct Benefit Transfer (DBT): Pilots and partial rollout for DBT of fertiliser subsidy to companies and farmers buy at lower prices via retailers. Price Regulation for Key Fertilisers: Government controls prices of urea, DAP, MOP — ensuring affordable access for farmers and stability in input costs.
• Neem-Coated Urea: Mandatory coating to reduce black marketing and promote slow nitrogen release for better soil health.
• Nutrient-Based Subsidy (NBS) Policy: Subsidy linked to nutrient content (N, P, K, S) to encourage balanced fertiliser use (non-urea fertilisers).
• Direct Benefit Transfer (DBT): Pilots and partial rollout for DBT of fertiliser subsidy to companies and farmers buy at lower prices via retailers.
• Price Regulation for Key Fertilisers: Government controls prices of urea, DAP, MOP — ensuring affordable access for farmers and stability in input costs.
Measures Needed:
• Food Coupons/Digital Wallets: Shift to digital coupons for bottom 15% population (~₹700/family/month) to buy diverse foods (pulses, milk, eggs).
• Targeting & Gradation: Tailor subsidy levels based on beneficiary income data (use PM-KISAN, Aadhaar, SECC databases).
• Fertiliser Coupons: Issue fertiliser coupons to farmers and deregulate prices to promote balanced and eco-friendly use.
• Encourage Alternatives: Incentivise bio-fertilisers and natural farming.
• Strengthen Monitoring: Triangulate data (PM-KISAN, land records) to improve targeting and reduce inclusion/exclusion errors.
• Political Communication: Build trust with farmers through advance communication to avoid resistance (as seen in earlier protests).
Conclusion:
India has made remarkable progress in poverty reduction and agriculture growth. But with a bloated subsidy bill and changing rural realities, it is time for smart reforms that promote nutrition, fiscal prudence, and environmental sustainability. Timely reform in food and fertiliser subsidies will ensure that public funds deliver maximum welfare impact.