Recent developments stemming from the conflict in West Asia have exposed India’s vulnerability to import shocks, impacting fuel costs, inflation, and growth projections. Alongside energy imports, the complex challenge of fertilizer subsidies has emerged as a major economic strain for the country.
According to the Union Budget for 2026-27, a provision of ₹1.71 lakh crore was allocated for fertilizer subsidies. India consumes approximately 70 million tonnes of fertilizers annually, with urea accounting for 55 per cent of this consumption and the largest share of subsidy expenditure. The country consumes around 40 million tonnes of urea every year, importing 25 per cent of it—primarily from Gulf countries. Furthermore, natural gas, a critical input for domestic urea production, is also imported from the region. Due to blockades and supply chain disruptions in the Strait of Hormuz, import prices for both urea and natural gas, along with shipping and insurance costs, have surged.
Consequently, urea import expenditures are projected to reach ₹2.5 lakh crore or more, nearly doubling the entire agriculture sector budget of ₹1.54 lakh crore for 2026-27. This additional expenditure poses significant challenges to the country's fiscal consolidation path. While the average cost incurred by the government for a standard 45 kg bag of urea is nearly ₹2,700, the price payable by farmers has remained unchanged at approximately ₹270 per bag since 2018.
The extended subsidy regime has contributed to severe overuse and misuse at the ground level. While the recommended nutrient ratio of Nitrogen, Phosphorus, and Potassium (N:P:K) is 4:2:1, actual usage stands at approximately 11:4:1 due to the low cost of urea. This overuse has degraded soil health, caused environmental pollution through nitrous oxide emissions, and reduced fertilizer-to-output efficiency. Additionally, an estimated 20 to 25 per cent of urea is diverted for industrial applications such as glass and plywood manufacturing.
To address these structural issues, experts suggest coordinated actions between Union and State governments. Proposed measures include expediting the farmer registry to establish purchase quotas, accounting for tenant farmers through verified self-declarations, and transitioning toward direct benefit transfers linked to verified crop cultivation. Rationalizing subsidies across different fertilizer types and incentivizing crop diversification from paddy to pulses and oilseeds are also recommended to curb import dependency.
Implementing these reforms requires careful stakeholder engagement and political will. Suggested strategies include deploying agricultural institutions like the Indian Council of Agricultural Research (ICAR) and Krishi Vigyan Kendras (KVK) to communicate the long-term environmental and fiscal impacts, alongside rolling out voluntary pilot projects in high-consumption blocks to demonstrate the benefits of optimized fertilizer usage.
"The compounding cost of fertilizer imports and heavy subsidies highlights a critical systemic challenge for the Indian economy. Addressing this issue requires a delicate balance between fiscal responsibility and agricultural sustainability. By leveraging technology for direct benefit transfers, curbing industrial diversion, and encouraging crop diversification through active farmer engagement, the economy can mitigate external supply shocks while preserving long-term soil health." — Dr. Shishir Gupta, Founder & CEO, StartupLanes
