India is grappling with a significant fertilizer challenge, driven by escalating global prices, disruptions in supply chains, and an unseasonably weak monsoon. These factors are dramatically increasing the government's subsidy burden and creating considerable uncertainty for the nation's farmers.
Decades of Subsidies Under Review
For decades, the Indian government has maintained low prices for urea, a nitrogen-based fertilizer critical to agricultural productivity since the Green Revolution. Farmers currently pay a mere $2.80 (approximately Rs 266.5) for a 45-kilogram bag of urea, a fraction of what the government procures it for internationally. However, the ballooning cost of these subsidies and growing concerns over the environmental impact of excessive fertilizer use are now compelling a fundamental rethink of this long-standing policy.
India, one of the world's largest urea importers, saw procurement prices nearly double in an April tender compared to pre-conflict levels, largely due to disrupted flows through the Strait of Hormuz. The rising cost of natural gas, a key raw material for domestic fertilizer production, further exacerbates the situation.
The government's fertilizer subsidy bill is projected to exceed $31 billion (Rs 3 trillion) in the current fiscal year, significantly surpassing the budgeted Rs 1.71 trillion. This figure could climb even higher if geopolitical tensions, particularly in West Asia, persist.
Push for Reduced Fertilizer Use
In response to the fiscal strain and environmental concerns, the government is actively promoting a reduction in chemical fertilizer consumption. Prime Minister Narendra Modi, in a May speech, stressed the importance of cutting chemical fertilizer use by as much as half to “save our Mother Earth.” The agriculture ministry also conducted a nationwide campaign in June, encouraging farmers to reduce usage and conduct soil tests.
Agriculture Minister Shivraj Singh Chouhan has warned that overuse of fertilizers can harm beneficial microorganisms, diminish soil health, and ultimately reduce yields while increasing costs for farmers.
Environmental and Agricultural Impact
Years of excessive fertilizer application have taken a toll on India's soil health. Data from the Agriculture Ministry for the 2025-26 season revealed that over half of the 9 million soil samples tested across the country exhibited low levels of organic carbon, a crucial indicator of soil fertility. Beyond soil degradation, fertilizer runoff contaminates groundwater and rivers, and excess nitrogen releases nitrous oxide, a potent greenhouse gas contributing to air pollution.
Experts like Avinash Kishore, a senior research fellow at the International Food Policy Research Institute, argue that current fertilizer subsidies represent “money being used inefficiently, ineffectively,” fostering unsustainable agricultural practices.
Farmers Face Difficult Choices
Despite government appeals, reducing fertilizer use presents a significant challenge for farmers who rely on maximizing yields for their income. Farmers like Sukhbir Ram and Prem Chand prioritize protecting their immediate harvests and incomes, often citing past experiences where reduced fertilizer use impacted their yields. Industry observers note that without legal stipulations, farmers have little incentive to cut back, striving to produce as much as possible from their land.
Rationing and Supply Concerns
The fertilizer shortage is becoming increasingly evident, particularly during the peak usage months of July and August. Farmers report receiving fewer subsidized bags than needed, forcing them to seek additional supplies from private dealers, often at higher costs or bundled with other products. Authorities have implemented measures such as capping subsidized purchases to prevent diversion and ensure equitable distribution, with some states limiting sales to 50 bags per buyer per month. A new distribution system, where farmers pre-book fertilizer based on landholding and crops, is also being piloted in 40 districts.
Monsoon Woes Add Pressure
Compounding the fertilizer crisis are concerns over rainfall. June saw the driest conditions in 12 years, with below-normal rainfall predicted through September, partly due to the El Niño phenomenon. This raises fears about agricultural output and food inflation, which already accounts for over a third of India's consumer basket and climbed about 5.5% last month from a year earlier.
Sonal Varma, chief economist for Asia ex-Japan at Nomura Holdings Inc., warns that “food inflation faces upside risks this year, as tightening global fertilizer supplies and deficient rainfall so far this season could weigh on agricultural output and put upward pressure on food prices.”
The Path Forward
While global fertilizer prices have seen some moderation, with rates in a June tender dropping significantly from April, future stability remains uncertain, especially if disruptions to the Strait of Hormuz continue. The government plans to boost annual domestic urea production capacity by 10 million tons, a third more than current levels. However, experts like Sachchida Nand of ICRIER emphasize that managing demand through policy reforms is the greater challenge, warning that without them, supply-side measures will incur a “high fiscal and economic cost.”