Fertiliser subsidy expected to exceed ₹3 lakh crore in FY27 if geopolitical tensions continue

India's fertiliser subsidy expenditure for FY2026-27 could exceed ₹3 lakh crore if geopolitical tensions in West Asia continue to disrupt global fertiliser s...

What Happened

India's fertiliser subsidy expenditure for FY2026-27 could exceed ₹3 lakh crore if geopolitical tensions in West Asia continue to disrupt global fertiliser supply chains and pricing.
The Union Budget 2026-27 had estimated the fertiliser subsidy at ₹1.71 lakh crore — a figure set before the escalation of the West Asia conflict.
A government official indicated that the subsidy bill may exceed the budget estimate by over ₹1.29 lakh crore, driven by a sharp surge in global urea and phosphatic fertiliser prices.
Global urea prices have risen by approximately $200-250 per tonne from pre-conflict levels, reaching close to $700 per tonne; DAP (Di-Ammonium Phosphate) prices rose from around $650 per tonne to $750-770 per tonne.
India recently placed an order for 2.5 million tonnes of urea at prices nearly double those paid two months earlier.
Despite the cost pressures, retail prices of urea (fixed at ₹242 per 45 kg bag since March 2018) and DAP remain unchanged — the entire price increase is absorbed by the government subsidy.
The Department of Fertilizers confirmed that adequate fertiliser supplies are in place for the 2026 Kharif season.

Static Topic Bridges

India's Fertiliser Subsidy Architecture

India's fertiliser subsidy system has two parallel tracks governed by different policy frameworks. Urea — the most widely consumed nitrogenous fertiliser — has its MRP fixed by the government at ₹242 per 45 kg bag (exclusive of neem-coating charges and applicable taxes) since March 1, 2018. The full difference between this controlled price and the actual cost of production or import is reimbursed to manufacturers and importers as subsidy. For Phosphatic and Potassic (P&K) fertilisers including DAP, MOP (Muriate of Potash), and complex fertilisers, the Nutrient Based Subsidy (NBS) scheme applies — a per-kilogram subsidy on each nutrient (N, P, K, S) announced by the Cabinet for Kharif and Rabi seasons separately.

Nodal ministry: Department of Fertilizers, Ministry of Chemicals and Fertilizers
Urea MRP: ₹242 per 45 kg bag (unchanged since March 1, 2018)
Urea pricing governed by: New Urea Policy (NUP), 2015; also the Modified NUP for energy norms
NBS scheme introduced: April 1, 2010 — covers DAP, MOP, SSP, complex fertilisers; NOT urea
Under NBS: Companies can set MRP at "reasonable levels"; government provides fixed per-nutrient subsidy
FY2026-27 Budget estimate for fertiliser subsidy: ₹1.71 lakh crore
Subsidy payment channel: Direct to manufacturers and importers (not DBT to farmers for most fertilisers)

Connection to this news: Because urea MRP is statutorily frozen at ₹242/bag and DAP retail prices are also kept stable through administrative support, every dollar increase in international prices translates directly into a higher government subsidy outgo, with no price signal passing to the farmer.

India's Fertiliser Import Dependence and the Urea Supply Chain

India is the world's largest importer of urea — the most consumed fertiliser by Indian farmers, primarily for nitrogenous nutrition of crops. India's domestic urea production capacity (approximately 25 million tonnes per annum) falls short of annual consumption (approximately 33-35 million tonnes), making the country structurally dependent on imports from the Middle East, China, Russia, and the former Soviet states. The Strait of Hormuz is a critical transit chokepoint — Iranian fertiliser exports and Gulf-based urea plants both depend on this passage.

India's annual urea consumption: ~33-35 million tonnes
Domestic production capacity: ~25 million tonnes per annum
Import gap: ~8-12 million tonnes per year
Major urea import sources: Oman, Qatar, Saudi Arabia, China, Russia
Global price benchmark: Black Sea urea FOB; Middle East urea FOB
India's largest fertiliser importer: Indian Potash Limited (IPL) and MMTC for state-channelised imports
Domestic urea producers: NFL (National Fertilizers Ltd), RCF (Rashtriya Chemicals and Fertilizers), GNFC, Chambal Fertilisers, etc.

Connection to this news: India's recent urea order placed at nearly double the price paid two months earlier directly reflects how supply disruptions in the Strait of Hormuz translate into emergency import costs, which flow entirely into the subsidy bill.

Nutrient Based Subsidy (NBS) Scheme

The NBS scheme was introduced on April 1, 2010, for P&K fertilisers to move away from an open-ended cost-plus subsidy to a fixed per-nutrient subsidy that incentivises efficiency and diversification. Under NBS, the Cabinet Committee on Economic Affairs (CCEA) approves per-kg subsidy rates for each nutrient — Nitrogen (N), Phosphorus (P), Potassium (K), and Sulphur (S) — for each agricultural season. Fertiliser companies then fix MRPs at "reasonable levels" within this framework, with the government subsidy bridging the gap to the market cost.

Launched: April 1, 2010
Covers: DAP, MOP (Muriate of Potash), SSP (Single Super Phosphate), complex fertilisers — not urea
Subsidy announced: Bi-annually by CCEA for Kharif (April-September) and Rabi (October-March) seasons
DAP: Most important P&K fertiliser; India imports over 60% of requirement (phosphoric acid + DAP)
Special additional support on DAP: Provided over and above NBS rates during periods of price spikes to cap farmer prices
Kharif 2026 NBS rates: Approved by Cabinet for April 1, 2026 to September 30, 2026

Connection to this news: The surge in DAP prices from $650 to $750-770 per tonne means the gap between the subsidised farm-gate price and import cost has widened significantly, adding to the government's NBS outgo over and above the budgeted amount.

Key Facts & Data

FY27 Budget estimate for fertiliser subsidy: ₹1.71 lakh crore
Projected FY27 fertiliser subsidy if tensions continue: Over ₹3 lakh crore
Potential overrun above budget: Over ₹1.29 lakh crore
Global urea price increase: ~$200-250 per tonne from pre-conflict levels; now approaching $700/tonne
DAP price increase: From ~$650/tonne to $750-770/tonne
India's recent urea order: 2.5 million tonnes at ~double the price of two months prior
Urea MRP for farmers: ₹242 per 45 kg bag (unchanged since March 2018)
India's annual urea consumption: ~33-35 million tonnes; domestic production: ~25 million tonnes
NBS scheme launched: April 1, 2010 (covers P&K fertilisers; urea excluded)
Nodal ministry: Department of Fertilizers, Ministry of Chemicals and Fertilizers
Kharif 2026 fertiliser supply: Adequate, per Department of Fertilizers