Eco Survey seeks modest hike in urea price, raises concerns on farm income

On agriculture, the survey noted the advancements in Indian agriculture pointed to the challenges that impact productivity and incomes that still need to be fully addressed

The Economic Survey has called for a modest increase in the retail price of urea while transferring an equivalent amount directly to the banks account of cultivators on the basis of acres cultivated to curb the fertiliser’s overuse.

 

This way, the Survey said, farmers would receive the same overall purchasing power but the relative price of nitrogen would move closer to its agronomic cost.

 

“This changes behaviour in a predictable way,” the Survey argued.

 

The Survey, while noting the advancements in Indian agriculture, also pointed to the challenges that impacted productivity and incomes that still needed to be fully addressed.

 

It said fragmented landholdings, inadequate marketing and storage infrastructure, limited access to quality inputs, relatively low levels of investment, and the uneven quality of extension services were among the prominent reasons for the low productivity level, which collectively affect resilience and farmers’ incomes.

 

It also advocated voluntary crop diversification rather than altering minimum support prices (MSP) or weakening procurement.

 

“Rather than altering MSP or weakening procurement, a calibrated strategy may use savings from improved stock management to support voluntary crop diversification,” the Survey said.

 

It also warned that though India’s ethanol-blended fuel programme had saved the country more than ₹1.44 trillion in foreign exchange but the rapid expansion in favour of maize-based ethanol was driving farmers to shift from pulses and oilseeds, raising concern about long-term food security and nutrition.

 

Meanwhile, the proposed shift from input subsidy to income support in fertilisers, as advocated by the Survey, aims to correct a three-decade-old imbalance in fertiliser use, which is degrading soil quality and undermining crop yields.

 

It said the nitrogen-phosphorus-potassium (N:P:K) ratio used by Indian farmers had deteriorated sharply from 4:3.2:1 in 2009-10 to 10.9:4.1:1 in 2023-24, driven by excessive nitrogen application through subsidised urea. Agronomic benchmarks suggest a ratio closer to 4:2:1 for most crops and soil types

 

Meanwhile, the overuse of urea, by far the cheapest available fertiliser whose retail prices have not been raised in more than 10 years has been one of the major reasons for ballooning fertiliser subsidies, expected to cross ₹1.91 trillion in FY26 as against the Budget Estimate of ₹1.67 trillion.

 

India’s urea consumption this financial year is projected to reach an all-time high of almost 40 million tonnes.

 

“As long as one nutrient is vastly cheaper (to) others, its overuse is structurally embedded, regardless of monitoring or enforcement.”

 

The Survey said more durable correction, therefore, required re-anchoring fertiliser decisions in soil and crop requirements rather than in administered price distortions. “This can be achieved by separating farmer income support from fertiliser purchase and allowing nutrient prices to convey agronomic scarcity.”

 

On how such a reform would impact tenant farmers who constitute a sizable portion of India’s farm ecosystem, the Survey said that over time, this is expected to adjust through the rental market, but pilot designs can incorporate tenancy-heavy districts to refine mechanisms before a wider rollout.

 

Concern on productivity in farming

 

Although agriculture and allied services are estimated to grow 3.1 per cent in FY26 and agricultural activity in H1 FY26 was supported by a favourable monsoon, growth is expected to remain below the long-term average of 4.5 per cent, the Survey said

 

“This trend reflects the structural characteristics of agricultural growth rather than short-term weather conditions. Crop-sector growth, which accounts for more than half of agricultural GVA, has been marked by significant year-to-year variability and has not exhibited a sustained upward trend, reflecting limited productivity gains over time.”

 

In contrast it said that allied activities, particularly livestock and fisheries, had grown at relatively stable rates of around 5-6 per cent. As their share in agricultural gross value added has increased, aggregate agricultural growth has increasingly reflected a weighted outcome of volatile crop performance and a relatively stable expansion in allied sectors.

 

The Survey also noted favourable terms of trade for agriculture in the last few years, saying that it was observed that the deflator was agricultural gross domestic product (GDP) has grown faster than the other sectors.

 

By FY25, it is at 2.17 relative to the 2011-12 base year. The GDP deflators of industry and manufacturing rose at a slower pace — 1.55 for industry and 1.41 for manufacturing by FY25, while that of services was better off at 1.75.

 

Accordingly, the terms of trade for manufacturing with respect to agriculture, i.e. the ratio of the manufacturing deflator to the agricultural deflator, starts high (about 1.29 in FY05) and steadily declines by 50 per cent to 0.65 in FY25, while its ratio with the services sector deflator declines by 25 per cent to 0.81 by FY25.

 

On the other hand, declining relative prices for manufacturing mean that the sector might face tighter margins as input costs (especially those from agriculture) rise, and this could deter investment if it is prolonged. However, profit margins of India Inc have not shown any signs of stress, indicating the adoption of other cost-cutting or labor saving innovations to preserve competitiveness.

 

“This also underscores the requirements for “Farm-to-Fork” policies that streamline the supply chain from producers to consumers—emphasising freshness, local sourcing, and fewer intermediaries, thereby reducing overall cost in the economy,” the Survey said.

 

MGNREGS and VB G RAM G

 

The Survey meanwhile also said that the Centre decided to comprehensively overhaul the Mahatma Gandhi National Rural Employment Guarantee Act with The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB–G RAM G) Act despite the scheme providing wage employment, stabilising rural incomes and creating basic infrastructure since 2005 as persistent deeper structural issues such as work not being done on the ground and expenditure not matching physical progress had creeped overtime.

 

“While delivery systems improved, the overall architecture of MGNREGA has reached its limits and warrants reassessment in light of evolving rural realities,” it said.