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Subsidised fertilisers straight to the farmer — that’s the idea driving a distribution system with multiple benefits

Selimineni Sambasiva Rao is benefitting from an exercise in efficient farming that could well become an example for agriculture all over India.

Mr Rao, a 55-year-old from Rayanapadu, a picturesque and thriving agricultural village in the Krishna district of Andhra Pradesh, is among 550,000 farmers who are part of a pilot project called the ‘Aadhaar-enabled fertiliser distribution system’ (AeFDS), which is designed to ensure that subsidised fertilisers reach the actual beneficiaries — farmers — prevent pilferage and save valuable public funds.

“AeFDS is based on Aadhar-enabled biometric authentication and ensures that farmers actually get the benefits intended for them,” says Ahmed Babu, who as the collector of Krishna district conceptualised and steered the project with the support of the Tata Trusts. “The pilot was designed to include end-to-end monitoring of the fertiliser supply chain, from the manufacturers to the farmers.”

A direct benefit transfer-based model, AeFDS was piloted by the Krishna district administration in partnership with the Trusts in March 2016. Initially 976 fertiliser retail outlets, including primary agricultural cooperative societies and private retailers across 50 sub-districts were covered under the pilot. Later 1,050 fertiliser retail outlets in West Godavari district were also included in the project.

The significance of the AeFDS is that it will play a critical role in making India’s agriculture economy more efficient and the government’s subsidy flow less leaky.

A farmer uses his thumb impression to purchase fertilisers at a retail shop in Rayanapadu village

Subsidies for agriculture

Agriculture is vital to India’s economy. About 55% of the country’s population is engaged in agriculture and allied activities, according to the 2011 census. In view of its critical importance for the nation’s food security, the Government of India heavily subsidises agricultural inputs such as fertilisers and pesticides.

At more than 700 billion, fertilisers are the second most heavily subsidised item (after food grains) in the public distribution system and comprise 30% of total subsidies given out by the government. The urea subsidy bill for 2018-19 alone is estimated at 450 billion. In addition, there is the forex burden to consider as India relies heavily on fertiliser imports. The country imports 25-30% of its requirement of urea, 90% of diammonium phosphate (DAP) and 100% of muriate of potash (MOP).

The central government’s Department of Fertilisers makes these farm inputs available to farmers at low rates and the subsidy — ranging from 30% to 70% of the cost of the fertilisers — is reimbursed to manufacturers.

What happens on the ground is often different from the playbook. Despite the government’s best intentions, subsidised fertilisers are often siphoned off for non-agricultural use. Urea is used in the manufacture of dyes and inks, coatings, plastics, paints, glues, animal feed and pesticides. Furthermore, unscrupulous traders and even manufacturers often inflate the amount of fertilisers distributed to profit from public money. “Not only were farmers not receiving the fertilisers but a substantial amount of government money was being wasted,” says Mr Babu.

Alarmed by the diversion of fertilisers to non-farm use and the serious loss to the exchequer, the Indian government had launched a series of initiatives to plug the leakages and strengthen the fertiliser distribution system. For example, selling neem-coated urea, which puts the fertiliser in slow release mode while also rendering it useless for non-farm use, has been made compulsory for all fertiliser outlets.

Various institutional mechanisms, such as the fertiliser management system, mobile fertiliser management system and the integrated fertiliser management system, were also introduced to monitor the import, production and movement of various subsidised fertilisers and the processing subsidy claims.

Inadequate to appropriate

These interventions, though successful in monitoring the movement of fertilisers from the plant and port up to the retailer level, proved inadequate in ensuring they reached farmers. It is against this background that the AeFDS was developed. The intent is to ensure timely and correct distribution of fertilisers and to effectively monitor their sales.

AeFDS is based on a biometrically-authenticated model that requires beneficiaries (the farmers) to authenticate their identity through Aadhaar cards at the retail outlets. “The earlier system allowed anyone to purchase fertilisers; people could buy it in their name or someone else’s,” explains Mr Babu. “The situation was so bad that fertilisers were being bought by people showing fake IDs or IDs of people no longer alive.”

AeFDS makes it mandatory for registered users to personally visit retail shops and authenticate their identity through biometrics-based point-of-sale (POS) machines. As a result, only genuine beneficiaries can avail the subsidy benefits.

In order to further foolproof the system, the AeFDS database was integrated with Webland, the Andhra Pradesh government’s land revenue database, and with the central government’s soil health cards (soil analysis reports that provide crop-wise recommendations of nutrients and fertilisers).

Implementing this proved to be a herculean challenge for the district administration and other stakeholders. The Tata Trusts were roped in by the Andhra Pradesh government to design and develop everything — from the operating protocols to support in providing infrastructure for the project.

An entire ecosystem had to be designed and implemented from scratch: finding the POS machines, seeding Aadhaar numbers, and training and educating manufacturers, wholesalers and retailers in participating in the system. “Training sessions were conducted in Telugu to educate stakeholders about transacting on the POS machines,” says R Pavithra Kumar, head, south zone, the Tata Trusts.

All-round success

The AeFDS system has proved to be a remarkable success on several counts. The farmers are happy as they now are far more likely to receive their rightful share of fertilisers. “Earlier, we were at the mercy of the retailers and often had to purchase from the open market as the stock wasn’t there at the mandated retail outlets,” says farmer Sambasiva Rao. “Now we are assured that our stock of fertilisers cannot be sold to others by the retailer.”

Another benefit for farmers is soil health, since the use of fertilisers is limited. “Getting fertilisers based on soil health recommendations reduces our investment on fertilisers, which leads to lower cost of cultivation,” says V Poorna Chandra Rao, a farmer from Gollapudi village in Krishna district. Mr Rao grows paddy on his seven-acre land holding. In the 2016 season he used 150kg of urea, 50kg each of DAP and MOP, and 100kg of NPK to produce about 25 quintals of rice. Last year, he managed to grow around 30 quintals on the same plot with half the quantity.

The impact of AeFDS on government savings is also clear. In Krishna district, 144,116 MT of urea were sold in 2016-17 against 170,292 MT the year before. The overall sales of fertiliser also dropped, from 335,060 MT in 2015-16 to 309,129 MT the next year, an 8% reduction.

This has led to subsidy payouts for fertilisers dropping, and savings of 450 million. “The figures assume greater importance when you consider that the area under cultivation has actually increased by 3% during the same period,” says GV Sivaprasad, who served as the agricultural officer looking after direct benefit transfers at the collector’s command control centre during the implementation of the project.

Another advantage of the AeFDS programme is that it empowers farmers in the value chain. “Farmers have to only pay the amount that is printed on the bill,” says Mr Sambasiva Rao. “The machine does the calculations and retailers cannot tamper with the cost of the fertilisers or the amount of stock available. Earlier, many of the dealers used to sell fertilisers above the marked prices, and that too non-standard fertilisers.”

The earlier system allowed anyone to purchase fertilisers. They could buy it in their name or someone else’s. The situation was so bad that fertilisers were being bought by people showing fake IDs or IDs of people no longer alive.”

Besides farmers, AeFDS has proved beneficial for fertiliser retailers, too. The sale through POS machines has reduced average transaction time, substantially cut down the time taken for inventory management and decreased the manual effort required to prepare reports. “The machine displays land record details and corresponding soil health information based on the farmer’s Aadhaar number,” says V Srinivasa Rao of Devarapalli village in Krishna district. “It also shows the quantum of fertiliser required, and generates the bill for the transaction. All this takes just two minutes on the POS machine.”

Out with the manual

“Earlier we had to manually maintain the records but after the implementation of AeFDS, stock management and generation of daily and monthly reports are done by the POS machines,” says Sudhakar Rao, a retailer from Rayanapadu.

The AeFDS programme’s biggest achievement has been increasing the accountability of stakeholders, including fertiliser manufacturers, wholesalers and retailers. It has also enhanced transparency, with improved tracking of the physical movement of fertilisers from manufacturers to farmers.

The larger benefits and financial savings for the exchequer encouraged the Indian government to extend the AeFDS programme to 17 districts across 10 states in April 2017. A scale up across the 250,000 fertiliser retailers of the country is being planned in a phased manner.

For the Tata Trusts, this successful partnership with the government has proved the efficacy of their policy to support initiatives aimed at bringing about change on a large scale by employing technology to maximum effect.

Agricultural officers at a workshop conducted to educate them about the Aadhar-enabled fertiliser distribution system