Fertiliser Subsidy in India: Challenges, Rising Costs, Nano Urea & Food Security

10 Jun 2026

The West Asia war and China stopping exports of key crop nutrients have reduced global fertiliser supplies and increased prices sharply, likely raising India’s fertiliser subsidy bill to nearly ₹3.4 lakh crore in FY 2026–27.

Key Highlights

Subsidy Burden: Due to global supply disruptions and rising prices, India’s fertilizer subsidy bill is projected to double from the planned ₹1.71 lakh crore to approximately ₹3.4 lakh crore.
Significant Price Gap: To protect farmers, the government heavily subsidizes fertilizers, selling a bag for around ₹300 despite its actual production and import cost reaching nearly ₹4,500.
The “3 Fs” Economic Strain: The Finance Ministry is concerned about India’s high dependence on imported Fuel, Fertilizer, and Foreign Exchange. Paying for these essential imports in US dollars depletes foreign reserves and devalues the Indian Rupee.
Alternative Sourcing: To mitigate these economic pressures and secure supplies, Indian public sector fertilizer companies are shifting their focus toward alternative suppliers, including Russia.

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About Fertiliser Subsidy System in India

Urea Subsidy System: Urea is the most widely used nitrogen-based fertiliser in India and plays a major role in improving crop productivity.

A fertiliser subsidy is financial support provided by the government to keep fertilisers affordable for farmers. Instead of paying the full market price, farmers get fertilisers at much lower prices while the government pays the remaining cost directly to fertiliser companies.

- Under this system:
  - The government fixes a low Maximum Retail Price (MRP) for farmers.
  - Fertiliser companies are required to sell urea at this controlled price.
  - The government later reimburses companies for the remaining cost as subsidy.
- Importance: This system protects farmers from sudden international price increases and ensures stable fertiliser availability.
Nutrient-Based Subsidy (NBS) Scheme: The NBS Scheme mainly covers non-urea fertilisers such as:
- DAP (Di-Ammonium Phosphate)
- MOP (Muriate of Potash)
- Subsidy is provided based on nutrient content such as:
  - Nitrogen
  - Phosphorus
  - Potassium
  - Sulphur
- Unlike urea:
  - The government does not fix the final retail price.
  - Fertiliser companies can adjust prices according to international market conditions.
- Recent Government Action: For the Kharif 2026 season, the Union Cabinet approved nearly ₹41,534 crore subsidy support for phosphatic and potassic fertilisers.
  - Because prices are market-linked, non-urea fertilisers become costlier during global crises and supply disruptions.

Significance of Fertiliser Subsidy in India

Protection for Small and Marginal Farmers: Fertiliser subsidies act as an important financial support system for millions of poor and marginal farmers who may otherwise become unable to afford costly agricultural inputs during periods of global price rise.
Ensures National Food Security: Affordable fertilisers encourage farmers to continue agricultural activities during both the Kharif and Rabi seasons, ensuring continuous food grain production and reducing the risk of shortages.
Controls Food Inflation: By reducing farming costs, fertiliser subsidies help prevent sharp increases in prices of cereals, pulses, vegetables, and other essential food items.
Supports Agricultural Productivity: Easy and affordable access to fertilisers improves crop yields, soil nutrient availability, and agricultural output.
- India remains one of the world’s largest producers of rice, wheat, and pulses, making fertiliser availability critical for food security, nutritional security, and agricultural stability.
Supports Rural Economy: Strong agricultural output also benefits allied sectors such as food processing, transport, and rural markets, making fertiliser availability crucial for the wider rural economy.

Challenges that Need to be Tackled

Heavy Pressure on Government Finances: The sharp rise in fertiliser subsidy expenditure places enormous pressure on government finances.
High Dependency on Imports: India remains heavily dependent on imports for urea, potash, phosphatic fertilisers, and LNG used in fertiliser production.
- Nearly 40% of urea demand is met through imports, while India imports almost its entire potash requirement.
Illegal Diversion and Black Marketing: Because agricultural urea is sold at highly subsidised prices, it is often illegally diverted towards industries such as plywood manufacturing, glue production, and resin industries.
Declining Soil Health: Cheap urea encourages excessive nitrogen usage while farmers use less phosphorus and potassium, disturbing the ideal N:P:K balance in Indian soils- 4:2:1
- In several states, nitrogen consumption remains disproportionately high, causing declining soil fertility, reduced nutrient-use efficiency, soil degradation, and long-term productivity loss.
Environmental Problems: Excessive and unscientific fertiliser use causes soil pollution, water pollution, groundwater contamination, and greenhouse gas emissions.
- According to climate reports, nitrogen fertilisers significantly contribute to Nitrous Oxide (N₂O) emissions, a major greenhouse gas. Environmental degradation can ultimately affect human health, agricultural sustainability, and water quality.

Actions & Initiatives Taken by India

Neem-Coated Urea: The government has made Neem-Coated Urea compulsory across the country to improve fertiliser efficiency and reduce misuse.
- Neem coating ensures slow nutrient release, improves crop absorption, and prevents illegal diversion of subsidised urea towards industries such as plywood and resin manufacturing.
Direct Benefit Transfer (DBT) System: Under the DBT system, fertilisers are sold through Aadhaar-linked PoS machines, and subsidy is released to companies only after actual sales to farmers are verified.
Revival of Closed Fertiliser Plants: India is reviving old fertiliser plants at Gorakhpur, Sindri, and Ramagundam to increase domestic production capacity.
Long-Term Import Agreements: India is increasingly signing long-term fertiliser supply agreements with countries like Russia and other alternative suppliers.
- This helps reduce dependence on conflict-prone regions and improves supply security during periods of geopolitical instability.

Way Forward

Promotion of Nano Urea: India should aggressively promote Nano Urea to reduce dependence on conventional fertilisers.
- A small 500 ml bottle of Nano Urea can replace a traditional 45 kg urea bag, helping reduce transportation costs, import dependence, and excessive chemical usage while improving nutrient efficiency.
- IFFCO has already started large-scale Nano Urea production in India.
Balanced Use of Fertilisers: Farmers should be encouraged to use fertilisers according to recommendations provided under the Soil Health Card Scheme.
- This can improve nutrient balance, soil fertility, and long-term agricultural productivity. India must shift from excessive nitrogen usage towards balanced fertiliser application.
Promotion of Sustainable Agriculture: Greater focus should be given to organic farming, bio-fertilisers, natural farming, and integrated nutrient management to reduce soil degradation, water pollution, and chemical dependency.
- Schemes such as PM-PRANAM encourage states to reduce excessive chemical fertiliser use.
Use of Alternative Raw Materials: India should reduce dependence on imported LNG by promoting Green Hydrogen and Coal Gasification for fertiliser production.
- This can improve energy security, fertiliser security, and long-term self-reliance while reducing vulnerability to global supply shocks.
Diversification of Import Sources: India must diversify fertiliser imports and reduce excessive dependence on any single country or region.
- India is increasingly signing long-term agreements with countries like Russia, Morocco, and other alternative suppliers to improve supply chain resilience, strategic security, and price stability.

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Conclusion

The fertiliser crisis highlights India’s dependence on global supply chains. While subsidies protect farmers and food security, India must strengthen domestic production, promote Nano Urea, reduce import dependence, and encourage sustainable fertiliser use for long-term resilience.

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