Fertiliser subsidy beats FY26 Revised Estimates, experts seek policy shift

India's fertiliser subsidy has exceeded FY26 Revised Estimates, prompting experts to call for policy reforms, including rational pricing, curbs on overuse, and bringing urea under the NBS regime

The latest data from the Comptroller and Auditor General (CGA) shows that India’s fertiliser subsidy has topped the Centre's Revised Estimate (RE) for FY26 by almost Rs 1.5 billion at the end of February 2026.

 

In effect, India has spent more than its budgeted fertiliser subsidy for FY26 even before the West Asia conflict broke out on February 28.

 

The data shows that till February 2026, India had spent around Rs 1.87 trillion on fertiliser subsidy while the RE for FY26 as per Budget documents pegged it at Rs 1.86 trillion.

 

However, several experts have said that fertiliser subsidy in March 2026 might not be as big, given that it is typically a lean period for consumption. Fertiliser production has also dropped by 27 per cent due to low availability of gas because of the West Asia conflict. Additionally, the current government had floated a import tender for 1.3 million tonnes of urea but that was at pre-war prices of around $550 per tonne.

 

But the mere fact that fertiliser subsidies have topped the RE shows the extent to which the subsidy problem has grown.

 

Since the conflict started, data shows that urea prices in global markets have jumped from $460 per tonne to almost $850 per tonne currently, an increase of almost 85 per cent. Di-Ammonia Phosphate (DAP) rates have also climbed in this period by almost 25-50 per cent to around $850-$1000 per tonne.

 

Urea and DAP are the two most widely used fertilisers in India.

 

Data shows that the jump in the subsidy amounts was primarily driven by an increase in consumption, supported by imports of cheap urea, DAP, and, to some extent NP/NPKS, even though rates for the latter are market driven.

 

Industry data shows that between April 2025 and January 2026, India imported close to 83 per cent more urea and 40 per cent more DAP than in the corresponding period of the previous fiscal. NP/NPKS imports in the April to January period were almost 103 per cent more than the corresponding period in the previous fiscal.

 

Urea prices in India are capped at around Rs 270 per 45-kg bag, while DAP prices - fixed at Rs 1350 per 50 kg bag - have not been changed since the Covid-19 pandemic. As a result, even as global and domestic urea and DAP prices have gone through the roof, there has been little to no impact on Indian farmers since retail prices have been shielded. Earlier, urea was outside the Nutrient Based Subsidy (NBS) regime but now DAP, too, is effectively outside its ambit.

 

Not surprisingly, such low prices drive the massive overuse of fertilisers across the country. For example, India is estimated to have consumed an all-time high of almost 40 million tonnes (MT) of urea in FY26.

 

The central government has assessed that in FY2024-25, 65 per cent farmers in India bought 5-7 bags of urea in a year, an amount which is considered reasonable. However, the remaining 35 per cent purchased urea far in excess of the required quantities. Of the 730 districts in the country, 163 show higher-than-needed fertiliser usage, with average urea consumption estimated at around 100,000 tonnes per annum.

 

In India, until before the West Asia conflict broke out, the cost of production of domestically-produced urea was close to Rs 32,000-Rs 35,000 per tonne while the imported price of urea was around Rs 36,000 per tonne (assuming a landed price of $420 per tonne for urea). However, the latter was available to farmers at a highly subsidised retail rate of Rs 5,630 per tonne plus GST.

 

To be sure, the government has on multiple occasions considered bringing urea under NBS rates but has always backed down over fear of facing a political backlash from strong farmer lobbies, besides pushing up inflation.

 

To get around the problem, it is now opting for rationalisation of sales and curbs on excess consumption by using digital platforms such as Agristack. This, it hopes, will serve the twin purposes of restoring soil which has deteriorated extensively due to excess nitrogen use through overuse of urea while also checking diversion that will help rein in subsidy levels.

 

The recent Economic Survey tabled in Parliament for FY26 showed that the nitrogen-phosphorus-potassium (N:P:K) ratio used by Indian farmers has deteriorated sharply from 4:3.2:1 in FY2010 to 10.9:4.1:1 in FY2024, driven by excessive nitrogen application through subsidised urea. Agronomic benchmarks suggest a ratio closer to 4:2:1 for most crops and soil types.

 

However, experts and academicians disagree with the government's new approach. According to them, using digital platforms like Agristack is fine for curbing excess consumption of urea, but won't check diversion and black-marketing - which is one of the main causes of excessive use - unless retail prices are reasonably raised.

 

Recently, a group of experts gathered for a discussion on self-sufficiency in fertiliser usage under the platform of National Academy of Agricultural Sciences (NAAS) reached a consensus that a paradigm shift is needed in current fertiliser policies. They also recommended bringing urea under the ambit of NBS, repurposing fertiliser subsidy as an incentive for adoption of GAP, linking subsidies with soil health card, and exploring the possibility to disbursing subsidy to the farmers as direct cash transfer.

 

“The availability of cheap urea is a principal disincentive to its efficient use,” said Dr M L Jat, director general of Indian Council for Agricultural Research (ICAR) and chairman of NAAS.

 

Some experts said a better way to approach the problem is to go for calibrated, limited price increases in urea without burdening farmers, an idea that the Economic Survey FY26 also advocated.

 

The Survey batted for modest increases in retail price of urea while transferring an equivalent amount directly into the bank accounts of cultivators on a per-acre basis to curb overuse which has vastly distorted the nutrient dynamics of soil in India.

 

This way, the Survey said, farmers will receive the same overall purchasing power, but the relative price of nitrogen moves closer to its agronomic cost. “This changes behaviour in a predictable way,” the Survey argued.

 

It said that as long as one nutrient (in this case, nitrogen by way of urea) is vastly cheaper than others, its overuse is structurally embedded, regardless of monitoring or enforcement.

 

The survey said that more durable correction, therefore, requires 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,” the survey said.

 

The Economic Survey also suggested that the once calibrated increases in retail price was done, it was expected to adjust through the rental market, band recommended pilot designs to incorporate tenancy-heavy districts to refine mechanisms before a wider rollout.