Bringing urea under NBS scheme faces farmer income, pricing challenges

Pilot trials using Agri Stack and farmer IDs to rationalise urea use have shown promise, but issues of bringing urea under the Nutrient Based Subsidy and rationalising retail prices remain

With the rampant use of subsidised urea destroying soil quality across wide swathes of farmland, the government of India has finally started pilot trials using the Agri Stack platform and farmer IDs to rationalise urea use, but rationalising its retail price to orient it to market prices remains a vexing issue.

 

Fertiliser Secretary Rajat Kumar Mishra recently cited the example of Haryana, where he said remarkable results were obtained from an experiment to connect land, fertiliser usage, and crops grown using Agri Stack.

 

“In less than four months, 102,000 tonnes of urea was saved as compared to the same period last year, while in the case of DAP, the saving amounted to over 72,000 tonnes,” Mishra said.

 

Government data for 2024-25, he said, shows that 65 per cent of farmers in India bought five to seven bags of urea in a year, which is a reasonable amount, while the rest purchased the maximum load of urea.

 

He said that in 163 of the total 730 districts across the country, high fertiliser usage is seen, with average urea consumption of about 100,000 tonnes per district.

 

“This means that these districts consume around 2.2 million bags of urea every year, and farmers know that this is unreasonable,” Mishra said.

Why bringing urea under NBS remains politically difficult

While bringing urea under the Nutrient Based Subsidy (NBS) regime would make its prices more market-oriented and curb surplus use, officials, including Mishra, concede this is easier said than done: with landholding sizes dropping, the average Indian farmer simply would not have enough surplus income to buy urea if prices were to shoot up.

 

“... when you see that landholdings are so small and with such small holdings farmers need to feed their families and meet other requirements, there is no scope of reasonability,” Mishra said.

 

As a result, when farmers with limited resources need crop nutrients, they opt for the cheapest one: urea.

How fertiliser prices affect food inflation

Bringing urea under the NBS and making its retail price market-oriented has another, more widespread risk: pushing up food inflation as input costs would go up, given that urea is by far the most widely consumed crop nutrient nationwide.

 

In FY26, urea consumption in India is expected to reach an all-time high of almost 40 million tonnes (MT), driven by increased demand due to higher acreage under maize and rice, supplemented by heavily subsidised prices compared to other fertilisers.

 

The current cost of production of domestic urea is close to Rs 32,000–Rs 35,000 per tonne, while the price of imported urea is around Rs 36,000 per tonne (assuming a landed price of $420 per tonne). However, it is available to farmers at a subsidised retail rate of Rs 5,630 per tonne plus GST.

 

As a result of high consumption, recent Budget documents show fertiliser subsidy allocation has risen by 11.05 per cent in the current financial year (FY26) to Rs 186,460 crore, as against a Budget Estimate of Rs 167,887 crore, due to high demand.

Why digital platforms are seen as the next best option

While there is a growing consensus among policymakers that bringing urea under NBS — which would make its retail price directly linked to the market — is the most desirable strategy, it is also seen as unfeasible to implement given the complexities of farm production.

 

Under the circumstances, then, the next best option is to opt for rationalisation of sales and curb excess consumption by using digital platforms. This will serve the twin purpose of restoring soil, which has deteriorated extensively due to excess nitrogen use through overuse of urea, while also checking diversion and, more importantly, reining in subsidy.

 

The FY26 Economic Survey tabled in Parliament last month showed that the nitrogen-phosphorus-potassium (NPK) ratio used by Indian farmers has deteriorated sharply from 4:3.2:1 in 2009-10 to 10.9:4.1:1 in FY24, driven by excessive nitrogen application through subsidised urea. Agronomic benchmarks suggest a ratio closer to 4:2:1 for most crops and soil types.

Why experts remain sceptical of the government’s approach

However, experts and academics seem to disagree with the government’s proposed approach.

 

Their argument is that using digital platforms such as Agri Stack is fine to curb excess consumption of urea, but will not check diversion and black marketing — one of the main causes of excess consumption — unless retail prices are raised to reasonable levels.

 

“Any commodity which sells at a price that is more than 50 per cent lower than its cost of production will always be prone to diversion and overuse,” Dr S Nand, former additional director general of the Fertiliser Association of India (FAI), told Business Standard.

 

He said the approach cannot be ‘either-or’. This means one cannot reject price increases for controlling usage through digital platforms. “It has to be a mix of both approaches,” he said.

 

One way to approach the problem is to impose calibrated, limited price increases in urea without burdening farmers, an idea that the Economic Survey advocated.

 

The Survey batted for a modest increase in the retail price of urea while transferring an equivalent amount directly to the bank account of cultivators on a per-acre basis to curb overuse.

 

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

 

It added that as long as one nutrient (nitrogen, in this case) 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,” it said.

 

On the question of how this model will impact tenant farmers, who account for around 60 per cent of total fertiliser usage, Mishra said it is being accommodated in the pilot trials so that there is no friction.

 

The Economic Survey has also suggested that once calibrated increases in retail prices are implemented — expected to adjust through the rental market — pilot designs can incorporate tenancy-heavy districts to refine mechanisms before a wider rollout.