fertiliser subsidy
What’s the ongoing story: Structure of the Fertiliser Industry in India
DOUBLE BURDEN OF SUBSIDY
Rising global costs of fertilisers amid a supply crunch is likely to result in a subsidy burden of almost Rs 3.4 lakh crore, or an almost 100 per cent increase compared with the Budgetestimate of Rs 1.7 lakh crore, according to top government sources.
What is fertiliser subsidy?
Farmers buy fertilisers at MRPs (maximum retail price)
below their normal supply-and-demand-based market rates or what it costs to produce/import them.
The MRP of neem-coated urea
for instance, is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively.
The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
The MRPs of non-urea fertilisers
are decontrolled or fixed by the companies. The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
The per-tonne subsidy is currently
- Rs 10,231 for di-ammonium phosphate (DAP),
- Rs 6,070 for muriate of potash (MOP) and
- Rs 8,380 for the popular ‘10:26:26’ complex fertiliser,
- with their corresponding average MRPs at Rs 24,000, Rs 17,500 and Rs 23,500 per tonne, respectively.
Decontrolled fertilisers, thus, retail way above urea, while they also attract lower subsidy.
How is the subsidy paid and who gets it?
goes to fertiliser companies
The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
Companies, until recently, were paid after their bagged material had been dispatched and received at a district’s railhead point or approved godown.
2018, a new so-called direct benefit transfer (DBT)
system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
point-of-sale (PoS) machine
Each retailer — there are over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT portal.
Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
The quantities of the individual fertilisers purchased, along with the buyer’s name and biometric authentication, have to be captured on the PoS device.
Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.
- Other Policies
- Monitoring System: The movement of all major subsidised fertilisers is monitored throughout the country by an on-line web-based monitoring system called integrated Fertilizer Monitoring System (iFMS).
- New Investment Policy (NIP), 2012: It aims to facilitate fresh investment in the urea sector and to make India self-sufficient in the urea sector.
- One Nation One Fertiliser: Launched under Pradhan Mantri Bhartiya Janurvarak Pariyojana (PMBJP), mandating that all Urea, MOP, DAP and NPK will be sold under the uniform Bharat brand to bring uniformity in the quality and brands.
- Pradhan Mantri Kisan Samriddhi Kendras (PMKSKs): One-stop shops that not only sell fertilisers but also provide advisory services, soil testing, and other agri-inputs to farmers
- Neem-Coated Urea (NCU): Improves nitrogen efficiency, requiring ~10% less urea to achieve comparable results, minimizing losses and enhancing soil health.
- PM‑PRANAM Scheme: Encourages reduced chemical fertilizer use, promoting organic alternatives, with state incentives linked to performance.
- Bio-fertilizers & Soil Health Card Scheme: Emphasize balanced nutrient input and tailored soil management through diagnostics and farmer guidance.
What is the fertiliser requirement of a typical farmer?
wheat or paddy
It depends on the crop. A farmer growing irrigated wheat or paddy may use about three
- 45-kg bags of urea,
- one 50-kg bag of DAP
- half-a-bag (25 kg) of MOP per acre.
20-acre farmer
A total of 100 bags would easily cover the seasonal requirement of a 20-acre farmer.
And that could possibly be a reasonable cap to impose
those wanting more can well afford to pay the unsubsidised rates for the extra bags.
How much subsidy does a farmer really get per acre?
total of Rs 2,437
For three bags urea, one bag DAP and half-a-bag MOP per acre, the farmer would spend a total of Rs 2,437 at existing MRPs.
The corresponding subsidy value – at an average of Rs
- 13,000 per tonne (Rs 585/bag) for urea,
- Rs 511.55/bag for DAP
- Rs 303.5/bag for MOP – will add up to Rs 2,418.3 per acre.
But then, farmers are also taxed on other inputs
Take diesel, where the incidence of excise and value added tax is Rs 42.19 on a litre retailing at Rs 70.46 in Delhi.
On 30 litres of average per-acre consumption for paddy or wheat, that will be nearly Rs 1,266. So, for every Re 1 spent on fertiliser subsidy, more than half is recovered as diesel tax.
In addition, farmers pay goods and service tax (GST) on inputs
ranging from
- 12% on tractors,
- agricultural implements, pumps and drip/sprinkler irrigation systems to 18% on crop protection chemicals.
- Fertiliser itself is taxed at 5%.
- And since there’s no GST on farm produce, they cannot claim any input tax credit on their sales, unlike other businessmen.
Key Takeaways:
• “We are still selling fertiliser at a subsidised price
of around
- Rs 300 per sack
- even though the cost has gone up from around Rs 2,900
- post Covid to around Rs 4,500 now.
- So, the subsidy (bill) may be 100% more than the Budgetestimate,” a source, who did not wish to be named, said.
• “It’s a very complex situation
CHINA - Global suppliers, including China, are holding on to their stock due to the Iran war.
The government is looking at Russia - to meet more of its imports,” another senior government official told The Indian Express.
diversion of fertilisers
Another concern that the government is keen to address relates to diversion of fertilisers meant for farmers to the industry.
The official said this issue is being discussed at the highest levels of ministries concerned — agriculture, fertilisers and finance.
tender to buy
• On May 27, state-owned National Fertilizers Ltd issued a global tender to buy 17 lakh metric tonnes (LMT) of urea. Before that, in early April, Indian Potash Ltd had issued a tender to import 25 LMT of urea.
need to spend Rs 1.71 lakh crore
• According to sources, the government does not see signs of fertiliser prices coming down and is trying to ramp up domestic production.
• The government had estimated it would need to spend Rs 1.71 lakh crore on fertiliser subsidy in 2026-27.
Latest data from the Controller General of Accounts shows the Centre spent Rs 22,033 crore as subsidy in April for urea and nutrient based fertilisers, roughly 13% of the full-year estimate.
Do You Know:
The war in West Asia and the closure of the key waterway of the Strait of Hormuz
has led to a huge jump in fertiliser prices, with India’s latest purchases of urea from abroad having been at a cost-plus-freight price of
- $935-$959 per tonne,
- more than double the year-ago figure of $410-$420.
Fertiliser was one of the ‘3 Fs’ cited by Finance Minister Nirmala Sitharaman last month
– along with fuel and foreign exchange to buy gold – that required a focus amid pressures exerted on the rupee by the ongoing conflict
as all these three items had to be paid for in foreign currencies and not rupees on account of them being imported.
India is one of the largest importers of fertiliser
in the world,
biggest exporters
while
- China,
- Russia,
- and Morocco count among the biggest exporters.
In mid-March, China banned the export of fertilisers to secure domestic supplies.
40% OF India’s urea imports
Prior to the West Asia war, the Gulf nations of
- Oman,
- Qatar,
- Saudi Arabia,
- United Arab Emirates (UAE),
- and Bahrain had a share of around 40% in India’s urea imports.
more than 60% of Indian imports of Liquefied Natural Gas (LNG) –
used to produce urea domestically – was supplied by
- Qatar,
- UAE, and
- Oman.
surged to 21.24 LMT from just 0.99 LMT in all of 2024-25. Meanwhile, urea imports from Russia rose more gradually in comparison to 13.99 LMT from 9.23 LMT.
government had said the overall stock position of fertilisers
is “comfortable”.
fertiliser requirement
383.9 LMT
For this year’s kharif season, the fertiliser requirement has been estimated at
- NEEDED 383.9 LMT,
- BUT stocks standing at 197.56 LMT, or 51% of the requirement.
higher than the usual level of about 33%
This, the government said on Monday in its inter-ministerial briefing on the West Asia conflict, is “significantly higher than the usual level of about 33%”.
Further, farmers have already purchased 86.65 LMT of chemical fertilisers in the on-going kharif season, amounting to just under 23% of the total requirement.
What’s the way forward?
paying farmers a flat per-acre cash
The time has come to seriously consider paying farmers a flat per-acre cash subsidy that they can use to purchase any fertiliser.
The amount could vary,
- depending on the number of crops grown
- and whether the land is irrigated or not.
This is, perhaps, the only sustainable solution to prevent diversion and also encourage judicious application of fertilisers, with the right nutrient (macro and micro) combination based on proper soil testing and crop-specific requirements.
Suggested Reforms by Committee
- Increasing Manufacturing Capacity: Constituting a task force to promote domestic urea production under the New Investment Policy.
- Production capacity of phosphatic and potassic (P&K) fertilisers should also be expanded through fiscal and tax incentives for the setting up of new units.
- Ensuring Supply of Raw Material: The Committee observed that 90% of the total cost of urea is natural gas, which is largely imported through long-term agreements.
- The gas procurement mechanism should be modified to ensure a constant supply of natural gas at competitive prices. This will also reduce the cost burden of the subsidy on the government.
- Controlling Malpractices: Formulating stringent policies to stop black marketing, establishing a network of labs to check fertiliser quality, and setting up a grievance redressal mechanism.
- Promotion of Nano Fertilisers: Increasing production of nano fertilisers and introducing a Production Linked Incentive (PLI) scheme for drones for spraying nano fertilisers.
- Nano fertilisers are effectively cheaper than conventional fertilisers in the long-term due to lower raw material requirements, higher nutrient uptake, and higher crop yields with lower fertiliser usage.
- Balanced Fertiliser Use: Training farmers to encourage balanced use of fertilisers, crop rotation, and natural ways of farming.
SOURCE IE
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