Fertiliser subsidy reform: India’s farm policy has spent five decades defending the gains of the Green Revolution. Subsidised fertiliser, irrigation and power helped a food-deficit country to become a self-sufficient one, which is no mean achievement. But the same policy architecture now carries costs that the Union Budget, soils and farmers can no longer absorb easily.
A 45 kg bag of urea is still sold to farmers at ₹242, excluding neem-coating charges and taxes, while the government has put the cost of the bag at about ₹2,200. The difference is paid by the Centre through the urea subsidy. For 2026-27, the Department of Fertilisers has a net budget allocation of ₹1,70,944.53 crore, with ₹1,16,805 crore for urea subsidy and ₹54,000 crore for nutrient-based subsidy on phosphatic and potassic fertilisers.
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Fertiliser subsidy reform and the urea trap
Cheap urea protects farmers from global price shocks. It also distorts the choice of nutrients. TAAS estimates that since Independence, foodgrain production rose 6.61 times, from 50 million tonnes to 330.5 million tonnes, while fertiliser use rose 464 times, from 0.07 million tonnes to almost 32.51 million tonnes. The gap between output growth and fertiliser use cannot be ignored.
The problem is not fertiliser use itself. Crops need nutrients. The problem is the price signal. Urea remains outside the Nutrient-Based Subsidy framework. Its retail price is kept low by statute. DAP, potash, sulphur and micronutrients face a very different pricing structure. ICRIER’s 2026 work notes that urea gets subsidy support of more than 80%, while P and K fertilisers receive much lower support, and micronutrients receive little direct subsidy except in coated or fortified forms.
Farmers respond rationally to these prices. They buy more nitrogen and less of what the soil often needs. ICRIER records that the N:P:K ratio moved from 4.3:2:1 in 2009-10 to 10.9:4.4:1 by 2024-25, far from the commonly cited 4:2:1 benchmark. Soil organic carbon is low in many regions. Zinc, sulphur and other deficiencies are spreading. Nitrogen losses through leaching and volatilisation reduce nutrient efficiency and add to groundwater and emissions risks.
Krishi Wealth Account for fertiliser subsidy
The Krishi Wealth Account proposed by the authors seeks to move the subsidy from a price-control instrument to a farmer-linked financial account. The idea is to shift the ₹1.71 lakh crore fertiliser subsidy into a digital ledger linked to the farmer’s existing bank account.
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Under the proposal, 70% of the entitlement would be available as a direct input transfer. It would allow the farmer to buy fertiliser at market-linked prices, based on crop and acreage norms. The remaining 30% would be invested automatically in fractional ownership of local rural infrastructure such as cold storage, solar pumps, rural grids or other productive assets.
The strength of the idea is that it does not begin by asking the small farmer to carry the transition cost. It recognises that a sudden rise in fertiliser prices can create a cash-flow problem before sowing. The draft addresses this through an interest-free input credit line from commercial banks, credited before the season and settled when the subsidy component is released.
That design matters. A fertiliser DBT cannot be run like an abstract fiscal reform. The farmer pays before harvest and receives income after harvest. Any delay in transfer will be felt immediately. The Finance Ministry and Agriculture Ministry would therefore need to treat timing, not only targeting, as the core implementation issue.
Soil Health Cards and nutrient-based subsidy
India already has part of the architecture needed for a better subsidy design. The Soil Health Card Scheme was launched in February 2015 to give farmers information on soil nutrient status and fertiliser recommendations. The cards cover 12 parameters, including N, P, K, sulphur, zinc, iron, copper, manganese, boron, pH, electrical conductivity and organic carbon.
But the card has not been tied to subsidy levels in a serious way. The state tells the farmer what the soil needs, while the price system tells him to buy urea. This is poor policy design, not farmer ignorance.
Bringing urea into the Nutrient-Based Subsidy framework is the cleanest reform on paper. It would reduce the artificial gap between nitrogen and other nutrients. ICRIER has also argued for gradual urea price rationalisation, eventual DBT-based subsidy delivery, and linking support to landholding, cropping pattern and Soil Health Card recommendations. None of this should be attempted nationally in one stroke.
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The first step should be district-level pilots in regions with digitised land records, active soil-testing systems and reliable fertiliser retail data. The pilot should test whether a farmer receives the transfer before sowing, whether retailers can handle market-linked pricing, whether tenant farmers are excluded, and whether nutrient use changes. Without answers to these questions, the reform will remain a spreadsheet exercise.
Foodgrain stocks give India room to test reform
The case for caution should not become a case for paralysis. India has room to test reform because public grain stocks are high. As of June 1, 2026, Reuters reported government rice stocks at 68.43 million tonnes and wheat stocks at 53.41 million tonnes, both well above official buffer needs. These stocks cannot justify reckless reform. They do allow limited pilots without immediate fear of food insecurity.
The present subsidy model keeps fertiliser affordable, but it creates no asset for the farmer. It also leaves the Union Budget exposed to global gas, ammonia and fertiliser prices. The Krishi Wealth Account tries to solve both problems by protecting seasonal liquidity while turning part of the subsidy into productive rural assets.
This is a large claim. It should be tested, not announced. Fertiliser subsidy reform will succeed only if it is gradual, soil-linked, and timed to the crop cycle. The present system has protected food security. It now needs to protect soil, fiscal space and the farmer’s balance sheet.
Lovely Wadhwani and Kashish Singh are research students, and Dr Savitha KL is Assistant Professor at Department of Economics, CHRIST University, BYC, Bengaluru.