India’s fertiliser subsidy bill could double the Budget estimate of ₹1.71 lakh crore for 2026-27 if the Finance Ministry accepts the Department of Fertilisers’ request for additional support. The demand follows a surge in global fertiliser prices after the West Asia conflict tightened supplies and raised import costs.
The Department of Fertilisers has reportedly met Finance Minister Nirmala Sitharaman three times to seek a 100% increase in the subsidy provision. If approved, the bill would rise to about ₹3.4 lakh crore, above the previous high of roughly ₹2.5 lakh crore in FY23 after Russia’s invasion of Ukraine.
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The immediate case for support is clear. Fertiliser prices cannot be passed fully to farmers without political and economic consequences. The government therefore absorbs the shock through subsidies. The problem is that this has become a recurring fiscal risk, not a one-off emergency.
Fertiliser imports and fiscal risk
India is among the world’s largest producers and consumers of fertilisers, but domestic production does not insulate it from global prices. The country imports nearly all its potash requirement and a large part of its phosphatic fertilisers. Even urea, where capacity has expanded, depends heavily on imported natural gas and, when needed, finished imports.
The vulnerability is not confined to finished fertiliser imports. LNG availability from the Gulf also affects domestic urea production. When gas supplies tighten, urea plants produce less and India imports more. A fertiliser shock can quickly become an energy, trade and Budget problem.
India is also exposed to the prices of ammonia, phosphoric acid, natural gas, sulphur and other inputs. These move sharply when war, sanctions, shipping disruption or energy shortages hit supply chains. Since retail fertiliser prices are tightly controlled, the fiscal burden shifts to the Budget.
The government has tried to increase domestic production. Dormant urea plants have been revived and new capacity has been added. This helps, but only up to a point. India lacks adequate reserves of potash and phosphate rock. Domestic production, too, depends on imported inputs.
The government has also tried to reduce supply risk through long-term contracts and import diversification. Indian companies have looked beyond the Gulf to Russia, Morocco, Canada and other suppliers. This is necessary. It is not sufficient. Contracts can improve availability; they cannot remove price exposure when the raw materials are concentrated abroad.
That is the central weakness. India can produce more fertiliser at home, but it cannot produce all the raw materials needed to do so. Self-sufficiency is therefore a limited answer.
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Urea subsidy and distorted use
The subsidy problem is not only fiscal. It also distorts fertiliser use.
Urea remains much cheaper than other nutrients because it is more heavily subsidised. Farmers respond to price signals. The result is excessive use of nitrogen and inadequate use of phosphorus, potassium and micronutrients. This damages soil health, reduces long-term productivity, and raises the subsidy bill further.
The current system rewards consumption rather than need. Large farmers and regions with more intensive fertiliser use capture a disproportionate share of the subsidy. Small and vulnerable farmers are protected, but not with precision.
India already has a nutrient-based subsidy for phosphatic and potassic fertilisers. The unresolved question is urea. Keeping urea outside a full nutrient-balanced framework keeps nitrogen artificially cheap and encourages overuse.
This cannot be corrected abruptly. A sudden rise in urea prices would hurt farmers and invite political resistance. But postponing reform has costs too. Every price shock makes the subsidy system more expensive to defend.
PM-PRANAM and Soil Health Cards point in the right direction. The first seeks to reward states for reducing chemical fertiliser use. The second gives farmers nutrient recommendations based on soil testing. Neither has yet changed the economics of fertiliser use at the farm gate.
Direct benefit transfer to farmers
India has implemented a version of direct benefit transfer in fertilisers, but only at the retail point. Farmers are authenticated at the time of purchase, while the subsidy still flows to manufacturers. This improves tracking. It does not change the structure of the subsidy.
The next step would be more difficult: transferring support directly to farmers. That would give farmers more choice, reduce distortions in fertiliser use, and make the subsidy more transparent. It could also be linked to land records or existing farmer databases such as PM-KISAN.
The obstacles are known. Land records are uneven. Tenancy is often informal. Beneficiary databases are incomplete. Political resistance will be strong. These are reasons for phased implementation, not for avoiding the question.
A start can be made with pilots in states where land and farmer records are stronger. The purpose should not be immediate savings alone. It should be to shift support from fertiliser consumption to farm income.
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Subsidy bill and capital spending
The fiscal implications are no longer small. Every rupee spent on additional subsidies is a rupee unavailable for capital formation, health, education, agricultural research or irrigation. The government has said its ₹12.2 lakh crore capital expenditure programme for FY27 remains intact despite emerging pressures. It should remain so.
Public investment has been one of the few reliable drivers of growth in recent years. Allowing subsidies to squeeze it would be poor fiscal management. Fertiliser, food and energy support were created to address genuine vulnerabilities. Their scale now constrains the state’s capacity to invest in future growth.
The issue, therefore, is not whether farmers should be supported. They must be. The issue is whether support should remain tied to the quantity of fertiliser consumed, irrespective of need, soil condition or farm size.
The latest fertiliser subsidy episode is a warning. India cannot remain in a cycle where every geopolitical crisis becomes a Budget crisis. Domestic production, long-term supply contracts and diversified imports are necessary. They are not sufficient.
The harder reform is to change the way support is delivered. A phased move towards nutrient-balanced pricing and direct income support would protect farm incomes while reducing waste. Without that shift, fertiliser subsidy will remain a hidden vulnerability in India’s public finances.