Fertiliser Subsidy Bill Escalates Beyond Budget Estimates
The Centre's fertiliser subsidy expenditure for the fiscal year 2025-26 has significantly surpassed initial projections, exceeding the Budget Estimate by over Rs 18,500 crore. Revised estimates presented by Finance Minister Nirmala Sitharaman reveal an outlay of Rs 1,86,460 crore, comprising Rs 1,26,460 crore allocated for urea and Rs 60,000 crore designated for other fertilisers. This substantial increase raises concerns about fiscal management as the government prepares for the upcoming financial year.
Budgetary Projections and Revised Figures
The previous budget had allocated Rs 1,67,887.20 crore towards fertiliser subsidies, with Rs 1,18,887.20 crore earmarked for urea and Rs 49,000 crore for other nutrients. For the 2026-27 fiscal year, the government has targeted a total subsidy of Rs 1,70,799 crore, including Rs 1,16,799 crore for urea and Rs 54,000 crore for other subsidies. However, experts warn that these figures may be exceeded due to multiple economic and geopolitical factors.
Under-Pricing Drives Unchecked Consumption Growth
A primary driver of subsidy escalation is the persistent under-pricing of key fertilisers, particularly urea and di-ammonium phosphate (DAP). The maximum retail price of urea has remained frozen at Rs 5,360 per tonne since November 2012, with only a marginal adjustment to Rs 5,628 per tonne following mandatory neem oil-coating implementation in January 2015. This price stagnation has led to a dramatic increase in urea consumption, rising from below 30 million tonnes in 2017-18 to 35 million tonnes in FY20-21, with projections suggesting over 40 million tonnes for the current fiscal year.
Domestic production has failed to keep pace with this consumption surge, peaking at 31.4 million tonnes in 2023-24 before declining. Consequently, urea imports have skyrocketed and may exceed 10 million tonnes in FY25-26, placing additional pressure on government finances.
DAP Shortages and Substitution Patterns
While DAP is technically decontrolled, allowing companies to set market-determined prices with government subsidies, its maximum retail price has been informally frozen at Rs 27,000 per tonne since the Covid-19 pandemic. This under-pricing has resulted in shortages and reports of black-marketing for DAP containing 46% phosphorus content. Farmers have increasingly turned to complex fertilisers containing nitrogen, phosphorus, potassium and sulphur in varying proportions as substitutes.
Paradoxically, some of these substitute fertilisers with lower phosphorus content are retailing at higher prices than DAP. For instance, '20:20:0:13' sells at Rs 29,000 per tonne, while '10:26:26:0' and '12:32:16:0' command Rs 39,000-40,000 per tonne. Only single super phosphate, containing just 16% phosphorus and 11% sulphur, remains more affordable at approximately Rs 11,500 per tonne.
Global Price Pressures and Currency Depreciation
Beyond domestic consumption patterns, international market dynamics present significant challenges. Imported urea was contracted at $424.8-426.8 per tonne in January tenders by National Fertilizers Ltd, maintaining similar levels to the previous year. However, concerns are mounting about global price hardening amid unchecked consumption growth worldwide.
Landed import prices for other fertilisers and inputs have increased substantially compared to last year:
- DAP: $677 versus $635 per tonne
- Muriate of potash: $349 versus $283 per tonne
- Phosphoric acid: $1,290 versus $1,060 per tonne
- Rock phosphate: $200 versus $175 per tonne
- Sulphur: $570 versus $190 per tonne
Geopolitical Conflicts Exacerbate Supply Challenges
Ongoing and potential conflicts are contributing to price volatility in global fertiliser markets. Iran, a significant exporter of urea and ammonia, faces potential disruption from US military actions, which could push world urea prices higher. Ukrainian drone attacks on Russian oil refineries have already reduced production from a major global supplier, leading to surging sulphur prices as Russia has banned exports.
These supply constraints have prompted other major producers including QatarEnergy, Saudi Aramco and Abu Dhabi National Oil Co. to raise prices, creating upward pressure on Indian fertiliser companies and affecting even DAP substitutes like '20:20:0:13' and single super phosphate.
Rupee Depreciation Compounds Fiscal Pressure
The Indian rupee's depreciation from 86.6 to 91.9 against the US dollar over the past year has further complicated the government's fiscal calculations. This currency weakness increases the cost of imported fertilisers and raw materials, adding to subsidy burdens. The government now faces the dual challenge of containing the fertiliser subsidy bill while balancing political compulsions to maintain affordable nutrient pricing for farmers.
As global tensions persist and consumption patterns remain unchecked, India's fertiliser subsidy framework faces unprecedented pressure, requiring careful policy navigation to ensure agricultural productivity while maintaining fiscal discipline.
