The Indian government is facing a massive surge in its subsidy bill during the current fiscal year, with fertiliser payouts potentially reaching Rs 3.8 lakh crore, more than twice the budgeted level. This comes against the government's total budgeted subsidy bill of Rs 4.1 lakh crore for 2026-27.
Cooking Gas Subsidy Also Under Pressure
For cooking gas, the budgeted subsidy of Rs 12,085 crore for this year is seen as inadequate, as the Centre paid Rs 26,000 crore to oil retailers last year. Currently, petroleum players are losing Rs 700 on every cooking gas cylinder sold to households. Additionally, the Centre has taken a hit of over Rs 1 lakh crore annually due to excise duty cuts earlier in the year.
Fertiliser Subsidy Details
Latest numbers from the fertiliser department indicate that the subsidy bill for urea and other fertilisers could touch Rs 3.8 lakh crore if current price levels persist, compared to the budgeted Rs 1.7 lakh crore for 2026-27. The department informed an informal group of ministers on Wednesday that the price of urea has increased by over 120% following the war. Similarly, global prices of Diammonium Phosphate (DAP) have shot up by 38%, sulphur by 87%, and ammonia by 84%. On top of that, there is an additional cost of 6% due to the rupee's depreciation against the dollar, people aware of the discussion told TOI.
Import Dependence
India remains heavily import-dependent for key fertilisers such as DAP, potash, and NPK. To meet annual urea consumption of around 40 million tonnes (MTs), India imports around 8-10 MTs. In the case of DAP, about 60% of domestic demand is met from imports, while India is completely dependent on imports for potash.
Last year, the fertiliser subsidy bill added up to around Rs 2.2 lakh crore, higher than the revised estimate. In 2022-23, the subsidy outgo for fertiliser hit a record Rs 2.5 lakh crore as supplies through the Red Sea were impacted.
Food Subsidy and Fiscal Challenges
Food subsidy, budgeted at around Rs 2.3 lakh crore, may also face pressure as the Food Corporation of India is grappling with excess stock of wheat and rice, leading to higher carrying costs.
By all assessments, it will take about two to three months for ship movement to normalise after the Strait of Hormuz opens, and oil and gas supplies from the region will take longer to be fully restored.
For the Centre, which has budgeted for a fiscal deficit of 4.3% of GDP, the situation remains challenging on the tax front too, if the tension persists. So far, GST collections have held firm, and an early assessment on direct tax will be available once the first instalment of advance tax is paid by June 15.
A senior official said the government has so far managed to ensure supplies, but constraints remain and will reflect in costs in the coming months if the war persists. Higher retail prices may hit consumption, especially in non-essential segments. Besides, companies are tightening their belts in certain segments, such as travel, to keep costs under check.
