Fertiliser subsidy bill for FY27 may rise by ₹70,000 crore on West Asia crisis: Official

The Department of Fertilisers has indicated that India's fertiliser subsidy bill for FY 2026-27 may rise by approximately ₹70,000 crore — a roughly 20% incre...

What Happened

The Department of Fertilisers has indicated that India's fertiliser subsidy bill for FY 2026-27 may rise by approximately ₹70,000 crore — a roughly 20% increase — beyond the budgetary allocation of ₹1.71 lakh crore, pushing the estimated total outgo to around ₹2.41 lakh crore.
The projected increase is driven by the West Asia conflict disrupting the Strait of Hormuz, causing global urea prices to spike to approximately $700 per tonne (up ~$200–250 from pre-conflict levels) and DAP prices to rise to $750–770 per tonne.
The additional secretary in the Department of Fertilisers stated that retail prices of urea and DAP would remain unchanged for farmers, with the government absorbing the full price increase through enhanced subsidies, ensuring adequate supply for the kharif season.
India recently placed an order for 2.5 million tonnes of urea at nearly double the price paid two months ago; supply is being sourced from alternative suppliers including Russia, Morocco, and Belarus, as West Asian supply routes are disrupted.

Static Topic Bridges

Nutrient-Based Subsidy (NBS) Scheme

The NBS Scheme, launched on 1 April 2010 by the Department of Fertilisers, provides a fixed subsidy (per kg of nutrient) on non-urea Phosphatic and Potassic (P&K) fertilisers. The subsidy is paid directly to manufacturers and importers, who are then expected to sell fertilisers at market-determined but subsidised prices. The scheme currently covers 28 grades of P&K fertilisers including DAP, MOP, SSP, MAP, TSP, and various NPK complexes.

Urea is not covered under NBS; its Maximum Retail Price (MRP) is statutorily fixed at ₹242 per 45-kg bag (unchanged since 2018), with the government covering the full differential between the MRP and the cost of production/import.
The Commission for Agricultural Costs and Prices (CACP) has recommended including urea under NBS to rationalise subsidy treatment, but this has not been implemented.
DAP subsidy is fixed on a per-tonne basis and revised periodically by the Cabinet Committee on Economic Affairs (CCEA); the government has substantially increased DAP subsidy rates during periods of global price spikes (e.g., 2021, 2022, and again in 2026).
DBT in fertilisers works at point-of-sale through PoS machines at retailers linked to Aadhaar-seeded land records; subsidy is reimbursed to companies after actual sales are recorded.

Connection to this news: Because the NBS and urea subsidy mechanisms fully insulate farmers from global price movements, every price spike — such as the current West Asia-driven surge — is borne entirely by the central government as an unbudgeted expenditure.

West Asia Crisis and Fertiliser Supply Chain Vulnerability

The West Asia conflict (from February 2026) effectively closed the Strait of Hormuz to commercial shipping, cutting off the cheapest and most direct supply route for ammonia, LNG (used for urea synthesis), DAP, and other fertiliser inputs to India. Iran is a significant ammonia exporter; the Strait handles approximately 20% of global traded crude and a significant share of LNG and petrochemical shipments.

Natural gas (LNG) accounts for ~80% of the cost of producing urea; LNG supply disruptions therefore translate directly into higher urea production and import costs.
India is the world's largest urea importer; it imports approximately 8–9 million tonnes annually to supplement domestic production of roughly 24–25 million tonnes.
DAP imports: ~40% of domestic demand is met through imports, primarily from Morocco, Saudi Arabia, Jordan, and China; West Asia accounts for a significant share.
MOP (Muriate of Potash) is 100% imported, primarily from Belarus and Canada; Russia and Belarus together account for ~40% of global potash exports.
Alternative supply routes being activated include Russia, Morocco, and Canada, but at higher freight and unit costs.

Connection to this news: The Strait of Hormuz disruption has simultaneously raised procurement costs for urea (LNG/ammonia feedstock), DAP (from West Asian producers), and MOP (elevated freight due to rerouting), compounding the subsidy burden across all major fertiliser categories simultaneously.

India's Fertiliser Import Policy and Fiscal Impact

India's fertiliser import policy is managed by the Fertiliser Ministry in coordination with state trading enterprises (STC, MMTC) and fertiliser PSUs (IFFCO, KRIBHCO, RCF, NFL). Import price fluctuations are absorbed through the NBS mechanism for P&K fertilisers and through the urea subsidy framework for urea. The fiscal cost of fertiliser subsidies has been among India's largest subsidy expenditure items, alongside food and petroleum subsidies.

FY27 budgeted fertiliser subsidy: ₹1,71,000 crore (Union Budget, February 2026).
Estimated revised outgo: ~₹2,41,000 crore — a ₹70,000 crore excess over budget.
India's total fertiliser subsidy in FY 2022-23 had ballooned to ~₹2.25 lakh crore due to the Russia-Ukraine war supply shock — the current situation is tracking a similar or worse trajectory.
Kharif season (June–September) is the critical demand window; any supply shortage before June has outsized food security implications.

Connection to this news: The ₹70,000 crore overrun will require either a supplementary demand in Parliament or reallocation from other budget heads, raising fiscal management concerns.

Key Facts & Data

FY27 budgeted fertiliser subsidy: ₹1.71 lakh crore (Union Budget, February 2026).
Estimated FY27 fertiliser subsidy after West Asia shock: ~₹2.41 lakh crore.
Implied overrun: ~₹70,000 crore (~20% above budget).
Global urea price post-conflict: ~$700/tonne (up ~$200–250 from pre-conflict level).
DAP price post-conflict: ~$750–770/tonne (up from ~$650/tonne).
India is the world's largest urea importer; domestic urea production ~24–25 MMT/year; imports ~8–9 MMT/year.
MOP: 100% imported; primarily from Belarus and Canada.
NBS Scheme launched: 1 April 2010; covers 28 grades of P&K fertilisers.
Urea MRP: ₹242 per 45-kg bag, unchanged since 2018.
India placed an order for 2.5 million tonnes of urea at approximately double the price paid in early 2026.
Russia, Belarus together hold ~40% of global potash exports and ~23% of ammonia exports.