India's fertiliser subsidy bill for FY27 may rise by Rs 70,000 cr on West Asia crisis, official says

The fertiliser subsidy bill for FY27 is projected to rise by approximately Rs 70,000 crore—or about 20%—over the budgeted estimate of Rs 1.71 lakh crore, dri...

What Happened

The fertiliser subsidy bill for FY27 is projected to rise by approximately Rs 70,000 crore—or about 20%—over the budgeted estimate of Rs 1.71 lakh crore, driven by a surge in global urea prices linked to the West Asia conflict.
India recently placed a tender to import 2.5 million tonnes (mt) of urea at close to $950 per tonne, nearly double the $510 per tonne paid in February 2026, reflecting the sharp price impact of the Strait of Hormuz disruption.
Domestic urea production fell from 2.5 mt per month to around 1.5 mt in March 2026 as liquefied natural gas (LNG) shortages affected Indian fertiliser plants, which rely on Gulf LNG for close to 45–50% of their feedstock.
Despite the cost escalation, the government has kept retail prices of urea and di-ammonium phosphate (DAP) unchanged to protect farmers, absorbing the difference through higher subsidy payouts.
The Commission for Agricultural Costs and Prices (CACP) has cautioned against shifting fertiliser support to a cash-transfer (DBT) model, warning that it could reduce fertiliser use and lower agricultural output.

Static Topic Bridges

Nutrient-Based Subsidy (NBS) Scheme

Introduced on 1 April 2010, the NBS scheme fixes subsidy on a per-kilogram-of-nutrient basis for phosphatic and potassic (P&K) fertilisers, rather than per bag. The objective is to encourage balanced fertilisation by making diverse nutrient combinations commercially viable. The Ministry of Chemicals and Fertilisers notifies NBS rates each season after approval by the Union Cabinet.

NBS rates for Kharif 2026: Nitrogen — Rs 47.32/kg; Phosphate — Rs 52.76/kg; Potash — Rs 2.38/kg; Sulphur — Rs 3.16/kg.
NBS covers all major P&K fertilisers including DAP, MOP, SSP, and complex grades.
Urea is explicitly excluded from NBS; its Maximum Retail Price (MRP) is fixed by the government at Rs 242 per 45-kg bag regardless of production cost.

Connection to this news: The government's inability to pass higher input costs to farmers through price hikes—because urea MRP is statutorily fixed—means every Rs 1 rise in imported urea price translates directly into a higher subsidy outgo.

Urea Pricing Policy and Import Dependence

Urea accounts for over half of India's total fertiliser consumption. India produces roughly 300 lakh tonnes annually and imports approximately 100 lakh tonnes to meet total demand of about 400 lakh tonnes. Natural gas is the primary feedstock for domestic urea, constituting close to 80% of production cost. The government reimburses domestic plants the difference between their certified cost of production and the fixed MRP under the New Pricing Scheme (NPS).

India is the world's largest importer of urea, making it highly sensitive to global price movements.
Gulf Cooperation Council (GCC) countries supply about 40% of India's imported urea and over 60% of its imported LNG.
Urea is classified as an "essential commodity" under the Essential Commodities Act, 1955, enabling the government to regulate its supply and price.
Any future inclusion of urea under NBS would require dismantling the fixed-MRP regime.

Connection to this news: The Hormuz blockade in 2026 simultaneously disrupted India's LNG supply (affecting domestic urea production) and its import pipeline (reducing available urea tonnage at competitive prices), compounding the subsidy burden.

West Asia Conflict and Global Natural Gas Market

The West Asia conflict of 2026 disrupted transit through the Strait of Hormuz, a critical chokepoint through which approximately 20% of global LNG trade passes. Iran, a major natural gas producer, and Gulf LNG exporters were directly affected, causing a global supply shock. Since urea synthesis requires ammonia, and ammonia requires natural gas via the Haber-Bosch process, natural gas prices are the decisive variable in global urea pricing.

About 80% of global urea is produced from natural gas (the rest from coal, mainly in China).
The global urea price spike from ~$510/tonne to ~$950/tonne between February and April 2026 is directly traceable to this supply disruption.
India's fertiliser import bill is denominated in US dollars, making rupee depreciation an additional cost multiplier.

Connection to this news: The price surge adds approximately Rs 70,000 crore to the FY27 subsidy bill, creating pressure on the Union Budget's fiscal consolidation targets.

CACP and Agricultural Input Policy

The Commission for Agricultural Costs and Prices (CACP) is a statutory advisory body established in 1965 under the Ministry of Agriculture and Farmers Welfare. It recommends minimum support prices (MSPs) and advises on input subsidy policy including fertilisers. CACP has long recommended including urea under the NBS regime for nutrient balance, but also recently warned that a Direct Benefit Transfer (DBT) approach to fertiliser subsidies—where cash is given to farmers rather than subsidising prices—could reduce fertiliser use and hurt crop yields.

CACP submits separate price policy reports for Kharif and Rabi seasons each year.
DBT for fertilisers has been discussed since 2016 but remains unimplemented at scale; a pilot in select districts showed leakages but also demand reductions.
The current model (in-kind subsidy via fixed MRP) ensures universal farmer access but creates inefficiencies and fiscal uncertainty when global prices are volatile.

Connection to this news: The FY27 subsidy overrun illustrates the fiscal vulnerability of India's price-control model for fertilisers, and strengthens the policy debate around DBT versus in-kind subsidy.

Key Facts & Data

FY27 budgeted fertiliser subsidy: Rs 1,70,799 crore (approximately Rs 1.71 lakh crore).
Projected overrun: Rs 70,000 crore (approximately 20% over budget).
Urea import price: ~$510/tonne (February 2026) → ~$950/tonne (April 2026).
India's annual urea consumption: ~400 lakh tonnes; domestic production: ~300 lakh tonnes.
GCC countries supply ~40% of India's urea imports and ~60% of LNG imports.
Urea fixed MRP: Rs 242 per 45-kg bag (unchanged since 2018).
Natural gas share of urea production cost: approximately 80%.
India is the world's largest importer of urea.