Why Budget 2026 must shift fertiliser support from price control to productivity

The Economic Survey 2025–26 flags a structural vulnerability at the core of Indian agriculture: fertiliser support has drifted from an instrument of productivity to a source of allocative inefficiency. Three decades of skewed nutrient pricing—most visibly the underpricing of nitrogen relative to phosphorus and potassium—have delivered short-term yield gains but are now imposing long-term costs on soil quality, water systems and fiscal sustainability. Budget 2026 must convert this diagnosis into a credible reform architecture.

The Economic Problem: Price Distortion, Not Overuse

India’s fertiliser challenge is often mischaracterised as excessive use. The Survey clarifies that the issue is mispriced use. Nitrogen dominates input decisions because it is artificially cheap, not because crops demand it in isolation. The result is declining marginal productivity of fertiliser, rising application rates per unit of output, and deteriorating soil response—classic symptoms of a distorted price regime.

Persisting with product-based subsidies locks public spending into a volume-driven equilibrium. Even incremental increases in urea consumption now generate diminishing yield returns while raising downstream costs through groundwater contamination, nitrous oxide emissions and soil nutrient mining. Budget 2026 therefore faces a choice: continue financing inefficiency or redirect support toward outcomes.

What Budget 2026 Should Offer: A Shift from Product Subsidy to Nutrient-Normalised Transfers

The Survey points toward a pragmatic middle path: retain income support, but delink it from specific fertiliser products. Budget 2026 should announce a phased transition from price subsidies to per-acre, nutrient-normalised cash transfers, indexed to agro-climatic zones and dominant cropping patterns.

Such indexing is essential. High-yield irrigated systems—rice–wheat belts and sugarcane tracts—have structurally higher nitrogen requirements than rain-fed coarse cereals or pulses. Zone- and crop-specific benchmarks ensure agronomic realism while still rewarding efficiency within each system. The policy lever is not absolute fertiliser reduction, but improved nutrient balance and response.

Fiscal Logic: Paying for Efficiency Rather Than Volume

From a fiscal perspective, this reform converts an open-ended subsidy into a predictable, capped transfer. As balanced fertilisation improves nutrient uptake efficiency, fertiliser use per tonne of output falls, slowing subsidy growth without imposing abrupt shocks on farmers. Over time, savings emerge not from cutting support, but from raising the productivity of each rupee spent.

The neem-coated urea experience provides empirical backing: modest changes in input design reduced diversion and misuse at scale. Budget 2026 can extend this logic by using price signals rather than administrative rationing to influence behaviour.

Implementation Readiness: Why the Transition Is Now Feasible

Earlier attempts at fertiliser reform failed due to weak delivery systems and information asymmetry. Those constraints no longer hold. Aadhaar-linked point-of-sale fertiliser transactions, real-time tracking through iFMS, and district-level nutrient data allow precise monitoring of use patterns. PM-KISAN provides an existing channel for timely, per-acre transfers aligned with sowing cycles.

Tenancy mismatches—where transfers accrue to landowners while cultivation is carried out by tenants—remain a legitimate concern. Budget 2026 should explicitly fund pilots in tenancy-heavy districts to test alternative attribution models before national rollout, rather than treating this as a reason for inaction.

Sequencing the Reform: Pilot, Benchmark, Scale

The Survey implicitly recommends gradualism. Budget 2026 should earmark a defined set of agro-climatic regions—spanning irrigated, rain-fed and mixed systems—for pilots. These pilots would generate evidence on soil response, yield elasticity and fertiliser substitution patterns, allowing transfer levels and benchmarks to be recalibrated before expansion.

The Strategic Payoff

This reform is not about shrinking fertiliser use, but about restoring the biological logic of crop nutrition. By re-aligning incentives with soil health and crop physiology, Budget 2026 can reposition fertiliser policy as a productivity-enhancing investment rather than a fiscal liability. The long-run payoff is higher yield response, more resilient soils and a farm support regime that rewards stewardship instead of distortion.