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 tabled in Parliament on Thursday called for a modest increase in the retail price of urea, coupled with an equivalent direct transfer to farmers’ bank accounts on a per-acre basis, to curb its overuse, which has significantly distorted soil nutrient balance.

 

Under this approach, farmers would retain 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 said.

 

As long as one nutrient remains vastly cheaper than others, its overuse becomes structurally embedded, regardless of monitoring or enforcement, it noted. A durable correction, therefore, requires re-anchoring fertiliser use in soil and crop requirements rather than administered price distortions.

 

 

“This can be achieved by separating farmer income support from fertiliser purchase and allowing nutrient prices to convey agronomic scarcity,” the Survey said.

 

Farmers who already use nitrogen efficiently would gain, as they would receive the full transfer while spending less at the counter. Those who over-apply would face a clear incentive to shift towards balanced fertilisation, soil testing, nano-urea, liquid fertilisers and organic amendments.

 

The Survey said India’s digital agriculture infrastructure makes such a reform operationally feasible. On concerns around tenant farmers, who constitute a sizeable share of the farm ecosystem, it noted that adjustments are expected to occur over time through rental markets, while pilot designs could incorporate tenancy-heavy districts before wider rollout.

 

The Survey flagged urea overuse, driven by its status as the cheapest fertiliser. India's fertiliser subsidy has ballooned as retail urea prices have not been raised for more than a decade. In FY26, this is projected to cross ₹1.91 trillion in FY26, compared with the Budget estimate of ₹1.67 trillion.

 

Urea consumption in the current financial year is expected to reach an all-time high of nearly 40 million tonnes due to excess demand.

 

While agriculture and allied services are estimated to grow 3.1 per cent in FY26, supported by a favourable monsoon in the first half, growth is expected to remain below the long-term average of 4.5 per cent.

 

“This trend reflects the structural characteristics of agricultural growth rather than short-term weather conditions,” the Survey said. Crop-sector growth, which accounts for more than half of agricultural gross value added (GVA), has shown significant year-to-year volatility and lacks a sustained upward trajectory, indicating limited productivity gains.

 

In contrast, allied activities—particularly livestock and fisheries—have grown at a relatively stable 5–6 per cent. As their share in agricultural GVA has increased, overall growth has increasingly reflected a mix of volatile crop performance and steady allied-sector expansion.

 

The Survey said rabi sowing has progressed well, aided by replenished reservoir levels, adequate soil moisture and sufficient input availability. This is expected to strengthen farm incomes and sustain rural demand, supporting growth momentum in the second half of FY26.

 

The Survey also noted favourable terms of trade for agriculture in recent years, with the agricultural GDP deflator rising faster than those of other sectors. By FY25, it stood at 2.17 relative to the 2011–12 base year, compared with 1.55 for industry, 1.41 for manufacturing and 1.75 for services.

 

Accordingly, the terms of trade for manufacturing relative to agriculture declined by about 50 per cent—from around 1.29 in FY05 to 0.65 in FY25—while its ratio with services fell by about 25 per cent to 0.81.

 

While rising agricultural prices may partly reflect government support mechanisms such as assured annual price increases, declining relative prices for manufacturing could compress margins as input costs rise, potentially deterring investment if the trend persists. However, the Survey noted that corporate profit margins have not shown stress, indicating the adoption of cost-cutting and labour-saving innovations.

 

“This underscores the need for ‘farm-to-fork’ policies that streamline supply chains, emphasise local sourcing, reduce intermediaries and lower economy-wide costs,” it said.

 

On public distribution system (PDS) reforms, the Survey highlighted Route Optimisation in the Public Distribution System (RO-PDS), a technology-driven initiative using optimisation algorithms developed by IIT Delhi and the UN World Food Programme.

 

These algorithms identify optimal routes between warehouses and fair price shops, lowering transportation costs and improving delivery efficiency. Within a year, route-optimisation assessments were completed across 31 states and Union Territories, generating estimated annual savings of about Rs 250 crore, the Survey said.