Centre prioritises urea and DAP imports alongside LNG-linked fertiliser production, but the divergence between global costs and fixed farm prices is driving subsidy overruns beyond budgeted estimates

India enters the Kharif season with officially comfortable fertiliser stocks and an administrative assurance of availability across key nutrients. Yet, beneath this reassuring surface lies a far more complex and increasingly fragile reality—one defined by elevated import costs, structural dependence on global markets, and a subsidy architecture that is steadily stretching its fiscal limits.

The fertiliser economy today is no longer constrained by physical scarcity; rather, it is shaped by the rising cost of ensuring affordability in an externally dependent system.

India’s annual urea consumption stands at approximately 40 million tonnes, making it one of the largest fertiliser markets globally. Domestic production, though significant, remains insufficient, necessitating imports of around 11 million tonnes annually—roughly 25 to 26 per cent of total demand. However, the deeper structural vulnerability lies in energy dependence: nearly 85 per cent of the natural gas used in domestic urea production is imported. Consequently, India’s fertiliser system is doubly exposed—first to global commodity markets and second to global energy volatility.

This exposure is becoming increasingly evident in recent procurement decisions. The Centre has approved a large urea import tender of approximately 25 lakh tonnes, with landed prices fixed at around Rs 80,000 per tonne (equivalent to $959 per tonne) for the eastern coast and approximately Rs 78,000 per tonne (equivalent to $935 per tonne) for the western coast. These figures reflect the full weight of global pricing conditions transmitted into domestic procurement costs. When contrasted with the heavily subsidised retail price at which urea is supplied to farmers, the disparity becomes stark. The government is effectively absorbing more than 90 per cent of the true economic cost of urea, thereby converting fertiliser distribution into a predominantly fiscal exercise rather than a market-based one.

A similar cost structure is visible in diammonium phosphate (DAP), another critical fertiliser. A consortium of government and cooperative fertiliser companies has finalised a tender for importing around 13 lakh tonnes of DAP at approximately $935 per tonne for the eastern coast and $930 per tonne for the western coast. Despite such elevated import costs, the government continues to maintain retail affordability by ensuring DAP is supplied at around Rs 1,350 per bag to farmers. This price stability is achieved through additional subsidy support under the Nutrient-Based Subsidy (NBS) framework. However, it is important to note that such compensatory support is not uniformly extended across all complex fertilisers, creating differential subsidy coverage within the fertiliser basket.

In parallel, the government has intensified its focus on ensuring fertiliser availability through coordinated procurement of LNG and imported fertilisers, recognising the interdependence between energy security and fertiliser security. This approach underscores a fundamental reality: fertiliser policy in India is increasingly inseparable from global energy markets.

The fiscal implications of this structure are becoming more pronounced. With import parity prices for urea and DAP hovering around Rs 78,000 per tonne, and with domestic retail prices remaining heavily suppressed, the subsidy burden is expanding rapidly. Current estimates suggest that fertiliser subsidies could rise significantly above budgeted levels, with a widening gap between planned allocations and actual requirements driven by sustained global price pressures and currency effects.

This divergence between international cost and domestic pricing is not a temporary distortion but a structural feature of the system. Urea prices at the farm level have remained effectively unchanged for nearly fifteen years, insulating farmers from volatility but simultaneously transferring the full burden of global price movements onto the fiscal balance sheet. The consequence is a system where consumption is price-inelastic, but subsidy obligations are highly elastic.

At the heart of this evolving challenge lies a deeper policy dilemma. India’s fertiliser framework continues to operate as a price-subsidy model, where affordability is achieved through direct government intervention in retail pricing. While this has ensured food security and rural stability, it has also created persistent distortions in consumption patterns, particularly the over-reliance on urea relative to balanced nutrient use. Soil health degradation and nutrient imbalance are, in part, unintended consequences of this long-standing pricing structure.

The emerging debate, therefore, is whether India should persist with this input-subsidy architecture or gradually transition towards a more direct income-support system for farmers. Under such an alternative model, fertiliser prices would be allowed to reflect global market realities, while income transfers would preserve purchasing power. While theoretically more efficient and fiscally transparent, such a shift would require careful calibration given the political sensitivity surrounding fertiliser prices and their centrality to rural livelihoods.

Ultimately, India’s fertiliser economy today presents a dual reality. On one hand, there is operational comfort, with adequate stocks and assured availability of both urea and DAP for the Kharif season. On the other, there is a steadily intensifying fiscal strain, driven by import costs approaching Rs 78,000 per tonne, heavily subsidised retail pricing such as Rs 1,350 per bag for DAP, and a subsidy system that is increasingly required to bridge the widening gap between global markets and domestic affordability.

The central challenge is no longer one of procurement or availability. It is one of sustainability. India is not confronting a fertiliser shortage; it is confronting the escalating cost of insulating its agricultural sector from global economic reality.