The vexed problem of fertilizer overuse and subsidy

Equally challenging, if not greater, is the complex issue of fertilizer which might dent the economy even further. How? Union Budget 2026-27 made a provision of ₹1.71 lakh crore to fertilizer subsidy. India consumes around 70 million tonnes of fertilizers. Urea has the largest share i.e., 55 per cent among various fertilizers and hence, accounts to maximum subsidy expenditure.

Consumption of urea is around 40 million tonnes every year, 25 per cent of which is imported i.e., 10 million tonnes, mostly from Gulf countries. Natural gaseous is a critical input to production of urea, which is also imported from Gulf countries. So even domestic production of urea is dependent on imports. Due to the West Asia conflict and resultant blockade of Strait of Hormuz, which is a major conduit to supply of natural gaseous and urea to our country, the prices of both of these as also the cost of shipping and insurance went up significantly.

Due to this double whammy, the expenditure on import of urea is likely to go up to ₹2.5 lakh crore or greater. Just to put it in context, the budget to the entire agriculture sector to 2026-27 is ₹1.54 lakh crore only! So, the expenditure on fertilizer will be almost double of what is provided to the entire sector. Further, the additional expenditure on account of fertilizer import and subsidy will adversely impact the fiscal deficit which is already under severe constraints due to increase in fuel import bill and might upset the country’s journey on the path of fiscal consolidation. Thus, urgent action on the fertilizer subsidy issue is the need of the hour.

Let’s examine what is happening on urea front. The price of standard 45 kg bag of urea, payable by the farmer is around ₹270/per bag which has remained unchanged since 2018, perhaps the only commodity in the country which has not seen the price rise in almost a decade. The average cost that government of India incurs on this bag is closer to ₹2700. Thus, the price payable by farmers is subsidised by 90 per cent which is like giving it to farmers almost free.

The circumstances in which urea subsidy was introduced, a few decades back, have changed completely however the subsidy regime continues unabated. greater worrisome is the way urea is applied/misused in fields. Recommended consumption of fertilizer (Nitrogen N): Phospate (P): Pottasium (K) is 4:2:1, however actually, at ground level, the application now stands around 11:4:1. Why it is so? Because, the urea is so cheap that farmers do not hesitate in applying it in the fields in abundance. What is the result ? The ratio of fertilizer to output which applied to be 1:10 has come down to 1:2. In addition to it, the overuse of urea has degraded the soil systems health besides causing environmental contamination due to emit of nitrous oxide atmospheric. Thus, the country is losing on import cost, farmers on production, soil systems on health, meaning thereby that overuse of urea is a losing proposition to each of us.

Another complexity in the fertilizer story is its distribution system. Though various measures have been taken both by the Union and State Governments to check misuse of urea and its diversion to other purposes like selling urea on the basis of land records, Aadhaar verification of purchaser, etc., however many a times, these measures are found wanting at the ground level because as of now, there is no manage or restriction on purchase of urea. Per a few estimates, 20-25 per cent of urea is diverted to other uses in various industries like glass, plywood, etc.