India's massive fertilizer subsidy program, a recurring fiscal burden exceeding ₹1.5 trillion annually, is in urgent need of a structural overhaul. Experts argue that transforming the current model into a genuine direct benefit transfer (DBT) system, sending funds straight to farmers via targeted e-RUPI vouchers, could unlock multiple benefits: saving public money, correcting distorted market signals, and healing degraded soil.
The High Cost of a Leaky System
The financial weight of the subsidy is staggering. The revised budget allocation for fertilizer subsidies in 2024-25 stood at ₹1.83 trillion, with over 65% consumed by nitrogen-based urea. For 2025-26, the allocation is ₹1.56 trillion. Introduced in 2017-18, the existing model is labeled a DBT but operates differently. Subsidies are routed to fertilizer companies, reimbursed after Aadhaar-authenticated sales at point-of-sale terminals, not transferred to cultivators themselves.
While this has improved traceability, it fails to address the core issue: artificially low retail prices that encourage overuse. A 2015-16 Economic Survey revealed a shocking reality—up to 65% of subsidized urea never reached small and marginal farmers, with 41% diverted for industrial use or smuggling. This overuse has dire consequences. The Indian Council of Agricultural Research notes the 'fertilizer response ratio' collapsed from 13.4kg of grain per kg of nutrient in the 1970s to just 3.7kg by 2005, indicating severe inefficiency.
From Soil Degradation to Public Health Crisis
The ramifications extend far beyond fiscal leakage. Rampant and imbalanced use of cheap urea degrades soil health, reduces farm resilience, and contaminates water sources. Excess nitrogen and skewed nutrient application have been linked to public health issues, including thyroid disorders, diabetes, and micronutrient deficiencies, transforming an agricultural policy flaw into a national nutrition concern.
Amit Kapoor and Pradeep Puri of the Institute for Competitiveness propose a clear solution: a true farmer-centric DBT system combined with nutrient caps. Instead of subsidizing companies, cash should be transferred directly to farmers' bank accounts as season-specific, per-hectare entitlements. These funds could be disbursed as e-RUPI vouchers, usable solely for fertilizer purchases, with limits adjustable for soil health card data.
The Triple Win: Fiscal, Ecological, and Agricultural
The fiscal argument for reform is powerful. Using the 2024-25 spend of ₹1.83 trillion as a baseline, a shift to a DBT system that reduces leakage to 10% could yield massive savings. If urea diversion alone falls from 41% to 10%, savings could be nearly ₹57,000 crore. If overall subsidy leakage drops from 65% to 10%, savings could approach ₹1 trillion. Even on the 2025-26 projection, potential savings range from ₹49,000 crore to ₹86,000 crore.
Beyond the treasury, the benefits are profound. Allowing fertilizers to be sold at market prices would restore crucial price signals, discouraging overuse. Bringing urea under the Nutrient-Based Subsidy (NBS) regime would help balance NPK application. This would restore soil fertility, reduce groundwater pollution and greenhouse gas emissions, and potentially boost yields. Redirecting even half the savings—around ₹75,000 crore annually—toward irrigation, soil testing labs, and extension services could spark a sustainability revolution.
Addressing potential farmer resistance requires smart design. Pre-season disbursal of e-RUPI vouchers would ensure liquidity. Implementation should begin with pilots in diverse agro-climatic zones, scaling up through states integrated with Agri-Stack and Soil Health Card data, supported by public dashboards tracking savings and soil metrics. This reform is more than an accounting exercise; it's a necessary reset for India's ecology, agriculture, and public health, anchored in data, discipline, and dignity for farmers.
