During External Affairs Minister S Jaishankar's visit to Moscow, Russian President Vladimir Putin confirmed that Russia would maintain consistent supplies of fertilisers and energy to India. This assurance comes at a crucial time for New Delhi, which is grappling with a significant increase in its fertiliser subsidy expenditure, further exacerbated by global market volatility.
India's Fiscal Challenge and Global Disruptions
India's fertiliser subsidy bill is projected to rise substantially, with officials anticipating it to exceed Rs 1 lakh crore in the current fiscal year (FY27). The government has already expended more than 55% of its Rs 1.77 lakh crore allocation for fertiliser subsidies in FY27, with a significant portion directed towards urea imports and domestic production.
Disruptions in the West Asia region and around the vital Strait of Hormuz have complicated global supply chains for fertilisers and key inputs like Liquefied Natural Gas (LNG). These geopolitical factors, coupled with elevated international prices, are placing immense pressure on India's budget.
The Department of Fertilisers has reportedly sought a 100% increase over the initial Rs 1.77 lakh crore budget allocation for subsidies, highlighting the severity of the financial strain and the need to meet domestic demand amidst high global costs. This request has intensified fiscal concerns within the ministry.
Market Dynamics and Supply Diversification
While global urea prices have seen a sharp decline from their peak in April, falling by approximately 60% to around $390 per tonne from nearly $1,000, prices for other essential fertilisers remain high. Diammonium Phosphate (DAP) and Muriate of Potash (MoP) saw price increases of about 15% and 10% respectively in July compared to the previous year.
India relies heavily on imports, sourcing about 70% of its fertiliser requirements and raw materials from abroad. To mitigate supply risks, the Indian government has diversified its procurement channels, establishing partnerships with countries including Oman, Malaysia, Vietnam, Russia, Nigeria, and Egypt.
The recent pledge from Russia offers an additional layer of supply security. However, the ultimate impact on India's subsidy burden will depend on future global price movements, the cost of imports, and the specific terms of the agreements reached for sourcing these critical agricultural inputs.