Fertiliser Subsidy Burden Set to Double for India

10 Jun Fertiliser Subsidy Burden Set to Double for India

Posted at 10 Jun 2026 in Current Affairs by Ayush Ranjan 0 Comments

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This article covers “Daily Current Affairs”

SYLLABUS MAPPING : GS Paper 3 : Economy

FOR PRELIMS : Fertiliser subsidy, NBS scheme, DBT in fertilisers, Urea Policy 2015, MRP of urea, DAP, MOP

FOR MAINS : India maintains the MRP of urea at ₹300/bag regardless of global price fluctuations, absorbing the entire cost differential as Central government subsidy. While this protects farmers from price shocks, it simultaneously encourages overuse, enables industrial diversion, and creates a structurally volatile fiscal liability. Analyse the trade-offs in India’s urea price control policy and evaluate whether a targeted DBT-based cash transfer to farmers — replacing the current price-suppression model — would better serve India’s food security, fiscal sustainability, and soil health objectives.

Why in the News

According to top government sources cited in The Indian Express (June 10, 2026), the Controller General of Accounts (CGA) data shows the Centre spent ₹22,033 crore on fertiliser subsidy in April 2026 alone — against a full-year Budget estimate of ₹1.7 lakh crore. Revised estimate for FY26 stood at ₹1.86 lakh crore. Provisional data shows FY25 actual subsidy was ₹2.11 lakh crore — 24% above the revised estimate. The FY27 Budget estimate is ₹1.70 lakh crore but is expected to be revised to ₹3.4 lakh crore — a near-100% increase. Key drivers: (1) Strait of Hormuz near-closure since Feb 28, 2026 — Gulf region supplies 20–30% of India’s urea and 30% of its DAP, plus 50% of India’s LNG (used for domestic urea production); (2) Urea import price has doubled to $935–959/tonne; (3) Sulphur costs spiked 50% to $630/MT; (4) Domestic urea production fell 25% as IFFCO and other producers scaled back; (5) Government cannot pass price increase to farmers — urea retail price fixed at ₹300/bag (45 kg) by law regardless of input cost; (6) PSUs — National Fertilizers Ltd (NFL) floated global tenders; Indian Potash Ltd (IPL) issued tender for 25 LMT urea; government looking to tap Russia for alternative supply.

₹3.4L Cr

Projected FY27 fertiliser subsidy (vs ₹1.7L Cr Budget est.)

$935–959

Urea import price per tonne (vs $410–420 year ago)

25%

Fall in domestic urea production (LNG supply disrupted)

50%

India’s LNG supply from Gulf — key input for urea production

₹300/bag

Urea MRP for farmers — unchanged despite cost doubling

Fertiliser Subsidy — Year-wise Budget Trend (₹ crore)

Central Fertiliser Subsidy (₹ crore) — Source: Budget Documents / CGA

FY20

₹81,124 Cr

FY21

₹1,27,922 Cr

FY22

₹1,53,758 Cr

FY23

₹2,51,339 Cr

₹2,51,339 Cr ⚠

FY24

₹1,88,292 Cr

FY25

₹1,70,683 Cr

FY26 RE

₹1,86,460 Cr

₹1,86,460 Cr (RE)

FY27 BE

₹1,70,781 Cr

₹1,70,781 Cr (BE)

⚠ FY27 actual estimate now: ~₹3,40,000 Cr — nearly 100% above Budget estimate

India’s Fertiliser Sector — Types & Import Dependence

Fertiliser	Nutrient	India’s Import Dependence	Subsidy Mechanism
Urea	Nitrogen (N) — 46% N content	~20% directly imported; effective dependence rises to ~50% when LNG (used for production) is counted. Gulf supplies 20–30% of imported urea; Russia emerging as alternative	Controlled Price (MRP fixed by govt at ₹300/bag) — full difference between cost and MRP paid as subsidy under Urea Policy 2015 / NPS-III. DBT-linked since 2018
DAP (Di-Ammonium Phosphate)	N + P₂O₅ (18% N + 46% P₂O₅)	~50% imported directly; Gulf supplies 30% of India’s DAP; Morocco and Russia are key alternate sources	NBS (Nutrient-Based Subsidy) — per kg fixed subsidy on nutrient content; MRP is decontrolled (market-linked) since 2010. Current MRP ~₹1,350/bag
MOP (Muriate of Potash)	K₂O — 60%	~100% imported — India has no significant potash deposits. Key suppliers: Canada (Nutrien), Belarus (Belaruskali), Russia, Jordan, Israel	NBS scheme — per kg potash subsidy; MRP decontrolled. Most geopolitically exposed fertiliser given Russia/Belarus dependence
SSP (Single Super Phosphate)	P₂O₅ + Sulphur	Largely domestically produced; uses imported sulphur and rock phosphate	NBS scheme; key for oilseed crops and pulses; encouraged under PM-PRANAM as alternative to urea overuse
Nano Urea	Nitrogen — 4% concentration	100% domestically produced by IFFCO — 500 ml bottle replaces 1 bag of urea. Pilot-scale; full replacement potential if adoption scales	Currently subsidised; long-term aim is to reduce subsidy burden by replacing conventional urea

India’s Fertiliser Policy Architecture

🔒 Urea Price Control

Urea MRP is fixed by the Government at ₹300/bag (45 kg) — unchanged for decades. The gap between production/import cost and MRP is borne entirely by the Central government as subsidy. This creates a 100% passthrough of global price shocks to the fiscal deficit.

🌾 NBS Scheme (2010)

Nutrient-Based Subsidy for P&K fertilisers (not urea). Per-kg fixed subsidy announced twice a year; MRP decontrolled — manufacturers can adjust prices. Kharif 2026: Cabinet approved NBS with ₹41,533 crore for 6 months — ₹4,317 crore above previous year.

📱 DBT in Fertilisers

Since 2018, subsidy paid to manufacturers/importers via Direct Benefit Transfer based on Aadhaar-authenticated, POS-verified sales to farmers. Ensures subsidy reaches intended recipients; prevents diversion to industry. PM Sitharaman called fertiliser one of the “3 Fs” requiring foreign exchange.

🏭 Urea Neem Coating

100% neem-coated urea mandatory since 2015 — slows nitrogen release, reduces soil and water pollution, improves crop uptake efficiency, and critically, deters diversion to industry (non-agricultural uses) since industrial processes cannot use neem-coated urea.

🌱 PM-PRANAM

PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth (2023) — incentivises states to reduce chemical fertiliser use; savings from reduced subsidy shared with state for soil health improvement; promotes alternate nutrients

⚗ Nano Urea & Nano DAP

IFFCO’s nano-fertilisers: 500 ml Nano Urea = 1 conventional bag. Liquid form, foliar spray. 100% domestic production. If adopted at scale, can significantly reduce import dependence and subsidy burden — key long-term strategy.

Strait of Hormuz Crisis — The Trigger

Why the Strait Matters for Fertilisers

The Strait of Hormuz is a 39-km wide chokepoint between Iran and Oman — the only sea route connecting the Persian Gulf to the open ocean
~33% of all global seaborne fertiliser exports transit the Strait — from Qatar (world’s largest LNG exporter), Saudi Arabia, UAE, Oman, Kuwait, and Iraq
Iran declared near-closure of the Strait to Western-aligned shipping from February 28, 2026 following the US-Iran military confrontation (“Operation Epic Fury”); 97% reduction in maritime traffic in days
Key commodities trapped: urea, ammonia, LNG, DAP, sulphur — all critical inputs for global and Indian agriculture
India imports 50% of its LNG from the Gulf — LNG is the primary feedstock for India’s domestic urea production; supply disruption = domestic urea production falls 25%

India-Specific Impact of Hormuz Crisis

Urea import price more than doubled from $410–420/tonne to $935–959/tonne in April 2026 — highest since the 2022 Russia-Ukraine spike
Sulphur cost (used in SSP and complex fertilisers) rose 50% to $630/MT
IFFCO scaled back domestic urea production as imported LNG feedstock costs became prohibitive; domestic output fell 25% in March 2026
Port congestion on India’s western seaboard — ships rerouting around Africa, adding 10–15 days transit time; freight costs soaring; exporters facing demurrage charges and “opportunistic pricing” by foreign carriers
Government response: PSUs floated emergency tenders; exploring Russia as alternative supplier (as done for crude oil post-2022); considering domestic production ramp-up with alternate gas sources

Multi-Dimensional Fiscal & Economic Impact

Fiscal Stress — Cascading Effects

₹3.4 lakh crore subsidy vs ₹1.7 lakh crore Budget estimate — an overshoot of ₹1.7 lakh crore; equivalent to India’s entire defence capital expenditure budget
Fertiliser subsidy is already India’s second-largest expenditure item after interest payments; doubling it means fiscal deficit target of 4.5% of GDP is under serious threat
₹1.23 lakh crore revenue foregone from the ₹10/litre excise duty cut on fuel (March 2026) + public sector OMC under-recoveries of ~₹1,000 crore/day compound the fiscal squeeze
Fertiliser diversion to industry — reports of subsidised urea reaching chemical factories rather than farmers; each sack diverted represents subsidy wasted
PM Sitharaman had flagged fertiliser as one of the “3 Fs” (Food, Fertiliser, Fuel) consuming foreign exchange — adding to India’s BoP stress

Food Security & Agricultural Impact

Kharif 2026 at risk — shortage of urea and DAP at the start of sowing season (June–July) directly reduces crop area and yields; rice, maize, cotton, soybean all heavy nitrogen users
Some states reporting 5 to 7 sacks per farmer instead of 2 — government concerned that subsidised fertiliser is being diverted to industry; official quoted: “How can so much fertiliser be used? Clearly it is going somewhere else”
If kharif output disappoints: food inflation will spike — compounding the existing pressures from El Niño weather risk and global supply disruption; CPI food inflation could breach 8–10% by Q3 FY27
Silver lining: government maintaining ₹300/bag urea price protects farmers from the global price shock; India’s food self-sufficiency buffer prevents immediate food crisis

Government Initiatives & Policy Responses

Initiative	Details & Significance
Emergency Import Tenders (June 2026)	National Fertilizers Ltd (NFL) issued global tender for 17 lakh metric tonnes (LMT) of urea; Indian Potash Ltd (IPL) tendered for 25 LMT. Government simultaneously in talks with Russia for preferential bilateral supply (as with crude oil post-2022) — potentially at concessional rates to reduce cost to exchequer.
NBS Kharif 2026 Approved	Cabinet approved higher Nutrient-Based Subsidy for Kharif 2026 — ₹41,533 crore for 6 months (₹4,317 crore above previous year); covers DAP, MOP, SSP, and complex fertilisers. Acknowledges the price spike while attempting to ensure P&K fertiliser availability.
PM-PRANAM (2023)	Long-term demand reduction strategy — incentivises states to reduce chemical fertiliser use by sharing subsidy savings. States reducing fertiliser use get funds for alternate nutrient promotion (bio-fertilisers, nano urea, organic). Directly addresses structural over-dependence on subsidised urea.
Nano Urea Scale-up (IFFCO)	IFFCO’s Nano Urea (500 ml = 1 bag) being pushed as substitute — domestically produced, no import dependence, lower subsidy cost. 4 plants operational (Kalol, Phulpur, Aonla, Bengaluru). If scaled, reduces India’s external vulnerability to Hormuz-type disruptions.
Urea Neem Coating	100% neem-coated urea mandate (since 2015) deters industrial diversion. However, recent reports of 5–7 bags reaching some farmers suggest leakages continue — enforcement through DBT POS machines and soil health card-linked dispensing must be strengthened.
Domestic Urea Capacity Expansion	Gorakhpur, Sindri, Ramagundam, and Barauni fertiliser plants revived under RFCL (Ramagundam Fertilizers) and HFCL since 2016–2022 — added ~50 lakh MT domestic capacity. However, these units depend on piped natural gas; LNG supply disruption still affects them.

Critical Perspectives

Justification for Maintaining Subsidy

Food security is non-negotiable — India’s 140 crore population cannot afford a food price shock from reduced fertiliser use; farmer access to affordable fertiliser underpins kharif production of 160+ million tonnes
The price shock is exogenous and temporary — Strait of Hormuz closure will eventually ease; India should absorb the short-term fiscal pain rather than pass it to farmers who cannot absorb a 2× increase in input costs
India’s fiscal capacity to manage — ₹3.4 lakh crore is large but manageable if it is financed through borrowing or revenue measures rather than expenditure cuts; India’s debt/GDP ratio (~82%) is elevated but not at crisis level
Precedent: India absorbed ₹2.51 lakh crore in FY23 (Russia-Ukraine shock) without a fiscal crisis; institutional capacity exists

Criticism of Current Approach

Structural dependence unaddressed — India’s 68–70% effective import dependence on fertilisers has not fallen despite years of “Atmanirbhar Bharat” in agriculture; the Hormuz crisis exposes this as a critical national security vulnerability
Diversion to industry — significant quantities of ₹300/bag subsidised urea reaching chemical factories (reports of 5–7 sacks per farmer); the entire subsidy architecture is porous and fiscally inefficient
No price signal to farmers — keeping urea at ₹300/bag regardless of global cost encourages overuse (India uses 2× more urea per hectare than recommended); over-fertilisation damages soil health and reduces long-term agricultural productivity
Nano urea delays — despite years of promotion, Nano Urea adoption is still a fraction of total urea use; scaling remains a challenge due to lack of last-mile awareness and farmer skepticism

Way Forward

Russia bilateral fertiliser deal: India must fast-track a government-to-government fertiliser supply agreement with Russia — replicating the crude oil discount mechanism. Russia is a major urea and MOP exporter; rupee-rouble settlement (as with oil) can reduce dollar outflow while securing supply at below-market rates.
Diversify supply sources urgently: Morocco (phosphate), Canada (potash), Egypt (urea), and Oman must be activated as alternative procurement channels — reducing the Gulf’s share from 30% to below 15% over 3 years. Long-term supply contracts with these nations, backed by government-to-government frameworks, reduce spot market exposure.
Scale Nano Urea with Jan Andolan: IFFCO’s Nano Urea must be backed by a national adoption campaign on the scale of PM-PRANAM — with input subsidy equivalence, Krishi Vigyan Kendra demonstrations, and ASHA/extension worker-style last-mile outreach. Even 20% substitution saves ₹30,000+ crore annually in subsidy.
Plug diversion through technology: Soil health card-linked fertiliser dispensing — where each farmer’s recommended dose is digitally capped at the POS machine — can prevent the 5–7 sack over-allocation reported. Aadhaar-linked purchase limits per land holding should be enforced strictly.
Expand domestic gas linkage: India’s fertiliser plants should be given priority access to domestic gas from ONGC and RIL’s KG-D6 fields — reducing dependence on imported LNG. The Coal Bed Methane (CBM) and coal gasification projects must also be accelerated to provide alternate feedstock for urea plants insulated from Gulf price shocks.
Long-term: decontrol urea with DBT to farmers: The most structural reform — move urea from controlled-price to market-price with direct subsidy to farmers’ accounts (DBT cash transfer). This eliminates diversion to industry, creates a price signal against overuse, and allows government to target subsidy to small and marginal farmers rather than providing blanket subsidies that benefit large farmers and industry equally.

Prelims Practice Question

Consider the following statements regarding India’s fertiliser sector and subsidy policy:

1. The Maximum Retail Price (MRP) of urea in India is fixed by the government and has remained at ₹300 per 45-kg bag, with the difference between this price and the cost of production/import borne entirely by the Central Government as subsidy.
2. Under the Nutrient-Based Subsidy (NBS) scheme, the MRP of DAP and MOP fertilisers is controlled (fixed) by the government, similar to urea.
3. India is almost entirely import-dependent for Muriate of Potash (MOP) as it has no significant domestic potash deposits.
4. The PM-PRANAM (PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth) scheme incentivises states to reduce their chemical fertiliser use by sharing the savings from reduced subsidy with the state government.

(A) 1, 3 and 4 only
(B) 2, 3 and 4 only
(C) 1 and 3 only
(D) 1, 2, 3 and 4

✅ Correct Answer: (A) — 1, 3 and 4 only

Statement-wise Analysis:

Statement 1 — CORRECT: Urea MRP is fixed by the Government of India at ₹300 per 45-kg bag (a price that has remained essentially unchanged for decades in real terms). The entire difference between the cost of production or import and this MRP is paid by the Central Government to manufacturers/importers as subsidy. This is why global urea price spikes (as in the current Strait of Hormuz crisis) translate directly into an enormous fiscal burden for the government — farmers are completely insulated from price signals.

Statement 2 — INCORRECT: This is the critical distinction. Under the Nutrient-Based Subsidy (NBS) scheme (introduced 2010), the MRP of DAP, MOP, SSP, and complex fertilisers is DECONTROLLED (market-linked) — manufacturers can set their own retail prices. The government provides a per-kg fixed subsidy on the nutrient content (N, P, K, S) to manufacturers, which they are supposed to pass on to consumers. In contrast, urea remains OUTSIDE the NBS scheme and under direct price control — this is the most important distinction in Indian fertiliser policy.

Statement 3 — CORRECT: India has no commercially viable potash deposits and is therefore almost 100% dependent on imports for MOP (Muriate of Potash). Key suppliers are Canada (Nutrien/Agrium), Belarus (Belaruskali), Russia, Jordan, and Israel. The Russia-Ukraine war (2022) and geopolitical disruptions severely impacted MOP supply chains — highlighting India’s acute vulnerability in the potash segment.

Statement 4 — CORRECT: PM-PRANAM (2023) incentivises state governments to promote alternate nutrients and reduce dependence on chemical fertilisers. The mechanism: if a state reduces its consumption of subsidised fertilisers, 50% of the subsidy savings are passed to the state as a grant for soil health improvement and alternate nutrient promotion. This creates a fiscal incentive for states to encourage sustainable farming practices.

Mains Practice Questions

“India’s fertiliser subsidy is the most direct illustration of how a geopolitical crisis in distant waters can detonate a fiscal bomb at home.” In the context of the Strait of Hormuz crisis (2026) and India’s projected fertiliser subsidy burden doubling to ₹3.4 lakh crore, critically examine India’s structural vulnerabilities in the fertiliser sector, the fiscal sustainability of the current subsidy architecture, and suggest a comprehensive reform roadmap to reduce both import dependence and subsidy inefficiency without compromising food security.