India's fertiliser subsidy regime is the second-largest central subsidy after food. It props up a food-security anchor but also props up an imbalanced NPK ratio, inefficient manufacturers, distorted cropping patterns and widespread leakages. With 2022-23 fertiliser subsidies touching Rs 2.51 lakh crore and soil health visibly deteriorating, reform has moved from desirable to unavoidable. This guide unpacks the regime, its flaws and the reform toolbox now partly in play.
Present Status of Fertilisers in India
- India is the second-largest consumer of fertilisers globally.
- Total fertiliser consumption rose from 1.1 MT in 1966-67 to ~55-60 MT in 2023-24.
- Import dependence:
- Urea: roughly 20-25% imported; ~10 MT of urea imported annually in normal years.
- Potassic (K): 100% imported (India has no commercial MoP resources).
- Phosphatic (P): ~90% imported either as finished product (DAP) or raw material (rock phosphate, phosphoric acid).
Why the Subsidy Exists
- Limited scope to bring more area under cultivation → productivity must rise, which needs fertilisers.
- Multi-nutrient deficiencies — India's soil health cards show widespread N, P, K, Zn, S, B deficiencies.
- Decline in crop yields in some belts.
- Low incomes of farmers make market-price fertilisers unaffordable.
Present Fertiliser Subsidy Mechanism
Government has subsidised fertilisers since the 1970s. Two separate mechanisms operate for urea and non-urea fertilisers.
Urea Subsidy: Cost-Plus Method
- The MRP of urea is statutorily fixed by the Government (around Rs 268 per 45 kg bag).
- Difference between MRP and cost of production is paid to the manufacturing company as subsidy.
- Different subsidy amounts for different manufacturers based on their costs.
Non-Urea Subsidy: Nutrient Based Subsidy (NBS)
- Under NBS (since 2010), Government announces a fixed rupee-per-kg subsidy on each nutrient — N, P, K, S — every year.
- Currently 21 grades of P&K fertilisers (DAP, MOP, NPK blends) are covered.
- For illustration, past announcements fixed rates like Rs 18 per kg for N, Rs 14 for P, Rs 10 for K, Rs 2 for S; since DAP contains about 460 kg P and 180 kg N per tonne, subsidy on a tonne of DAP works out to around Rs 10,000 (or Rs 500 per 50 kg bag).
- Rates are revised periodically to reflect international raw material prices; during 2022-23 global price spikes, NBS rates were sharply raised, pushing total subsidy to a record.
Freight Subsidy
The Government also provides transport subsidy to fertiliser companies under the Fertiliser (Movement) Control Order, 1973.
Problems and Initiatives Taken
| Problems in Fertiliser Subsidy | Initiatives Taken |
|---|---|
| Unsustainable subsidy burden — peaked at Rs 2.51 lakh crore in FY 2022-23 | PM-PRANAM scheme to incentivise states to reduce chemical fertiliser use; nano urea and nano DAP to cut bulk demand |
| Encourages inefficient manufacturers — higher production cost → larger subsidy under cost-plus for urea | Gradual move toward DBT to farmers being piloted; New Urea Policy pushing efficiency |
| Imbalanced NPK use — urea is cheapest, so over-used. NPK ratio 7:3:1 against ideal 4:2:1 | Neem-coated urea (100% since 2015) reduces diversion; Nano liquid urea to moderate demand |
| Leakages under "no-denial" policy — limit of 100 bags per transaction but buyers can repeat | POS-based Aadhaar-authenticated sales and PoS-linked subsidy release |
| Diversion to industry — urea is used in chemicals, resins, explosives; cheap agri urea gets diverted. Eco Survey 2015-16: ~41% of urea diverted to industry or smuggled | Neem coating made urea unfit for industrial use; tighter monitoring |
| Canalisation of urea imports — only 3 firms (STC, MMTC, IPL) allowed earlier; led to peak-season shortages | Decanalisation of imports expected; Urea Gold (sulphur-coated urea) introduced |
| Lack of emphasis on R&D — subsidy based on nutrient content, not nutrient-use efficiency | Nano Urea (IFFCO) and Nano DAP commercialised (2021, 2023); innovation incentives under PM-PRANAM |
| Adverse effect on small farmers — forced to buy in black market where cheap stock diverted | PoS authentication, cap on bags per transaction cut to 100 (2020) |
| Negative externalities — declining soil fertility, nitrogen runoff into water, greenhouse gas emissions | Soil Health Cards, PM-PRANAM, PKVY (Paramparagat Krishi Vikas Yojana), natural farming push |
Key Reform Instruments
DBT in Fertilisers (Phase 2)
Under the current model, subsidy is paid to manufacturing companies against Aadhaar-authenticated PoS invoices generated by retailers. This is technically "DBT to companies" — a halfway reform. The full DBT to farmers' bank accounts is under active consideration but faces challenges of identifying actual buyers, cash flow for farmers and political sensitivity.
PM-PRANAM Scheme
Promotion of Alternative Nutrients for Agriculture Management (PM-PRANAM) — announced in Budget 2023-24. States that reduce their chemical fertiliser consumption receive 50% of the subsidy savings as grants to promote alternative, organic and bio-fertilisers. Goal: restore soil fertility while reducing fiscal burden.
Nano Fertilisers
- Nano Urea (IFFCO) — 500 ml bottle replaces 45 kg urea bag; foliar spray; reduces runoff.
- Nano DAP commercialised in 2023.
- Early adoption; long-term agronomic efficacy under independent evaluation.
Urea Gold and Sulphur-Coated Urea
- Addresses sulphur deficiency in Indian soils.
- Slows nitrogen release, improving nutrient use efficiency.
Bringing Urea Under NBS
Economists and NITI Aayog have long recommended bringing urea under the NBS regime to remove market distortions and let prices signal correct NPK use. So far politically resisted.
Other Reform Strategies
- Introduce DBT of fertiliser subsidy directly to farmers.
- Cap the number of subsidised bags a household can purchase per season.
- Decanalise imports to increase the number of importers.
- Strengthen Soil Health Cards with location-specific recommendations.
- Promote judicious use through extension (KVKs, e-choupals).
- Fertiliser-nutrient ratio-based pricing instead of flat per-unit subsidy.
Fiscal Envelope
| Year | Fertiliser Subsidy (Rs crore, approx.) |
|---|---|
| FY 2019-20 | 81,124 |
| FY 2020-21 | 1,27,922 |
| FY 2021-22 | 1,53,758 |
| FY 2022-23 | 2,51,339 (record) |
| FY 2023-24 (RE) | 1,88,894 |
| FY 2024-25 (BE) | 1,64,000 |
| FY 2025-26 (BE) | ~1,67,000 |
Latest Developments (2024-26)
- Budget 2025-26 pegged fertiliser subsidy at ~Rs 1.67 lakh crore, continuing the post-peak moderation.
- Urea Gold (sulphur-coated urea) commercial rollout expanded in 2024.
- Nano Urea production capacity expanded; IFFCO and RCF operating multiple plants.
- PM-PRANAM scheme finalised; first disbursals to participating states in 2024-25.
- PM Kisan Samriddhi Kendras (PMKSK) — over 1 lakh retail outlets converted into one-stop agri-input hubs.
- International prices of urea, DAP, MoP moderating from 2022 peak; subsidy envelope expected to stabilise.
- Draft New Urea Policy under discussion — performance-linked subsidy for energy-efficient plants.
- DBT to farmers for fertiliser subsidy — Group of Secretaries recommended phased pilots.
UPSC Relevance
GS-III Mapping
- Government Budgeting — subsidy design, fiscal cost.
- Agriculture — fertilisers, soil health, sustainable agriculture.
- Indian Economy — subsidy reform, DBT, targeted welfare.
- Environment — soil degradation, water pollution.
Prelims Bullets
- Nutrient Based Subsidy (NBS) — introduced 2010; fixed subsidy per kg of nutrient.
- Urea subsidy — cost-plus; MRP fixed statutorily.
- Neem-coated urea — 100% coated since 2015.
- NPK ratio — actual ~7:3:1; ideal 4:2:1.
- PM-PRANAM — Budget 2023-24; states that reduce chemical fertiliser get 50% subsidy savings as grants.
- Nano Urea (IFFCO) — commercialised 2021.
- Urea Gold — sulphur-coated urea; launched 2023.
- Peak fertiliser subsidy: Rs 2.51 lakh crore in FY 2022-23.
Mains Angles
- "Bringing urea under Nutrient Based Subsidy is the single biggest missing reform of the fertiliser regime." Examine.
- "India's fertiliser subsidy is both a food-security instrument and an environmental liability. Suggest a reform path that reconciles the two."
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