Why in the News
The Union Budget for 2026-27 set aside Rs 54,000 crore to subsidise phosphatic and potassic (P&K) fertilizers, but the approved outgo for the year has crossed Rs 1 lakh crore. The Union Cabinet has approved Rs 62,370.02 crore for the Rabi (winter crop) season, 64% more than last year. The overshoot sets cheap fertilizer for farmers against the fiscal deficit.
What is the fertilizer subsidy, and how does it work?
- What it is: The government pays fertilizer companies part of their cost, so farmers buy fertilizer below its market price. It works like a discount that the government pays for.
- Nutrient Based Subsidy (NBS): P&K fertilizers, including Di-ammonium Phosphate (DAP), supply phosphorus and potash to crops. For them, the Centre fixes a subsidy rate for each nutrient: nitrogen, phosphorus, potash and sulphur.
- Seasonal approval: The subsidy is allocated separately for the Kharif (monsoon crop) season and the Rabi season.
- Urea: Urea has its own Budget allocation. Liquefied natural gas (LNG) is the key input for making it, so gas prices decide its cost.
- The takeaway: Farmers’ prices are held down, so any rise in global fertilizer or gas prices falls on the Union Budget.
What has the Cabinet approved?
- Comparison with last year: The Rabi approval compares with Rs 37,952 crore budgeted for last year’s Rabi season.
- Period covered: The rates apply from 1 October this year to 31 March next year.
- DAP price protection: A special provision continues to keep DAP available to farmers at a fixed Rs 1,350 per bag.
- Kharif share: This year’s Kharif season had already taken Rs 41,533.81 crore, so the Rabi approval pushed the P&K bill past its Budget allocation.
How far has the bill overshot the Budget?
- Budget assumption: The Budget cut the total fertilizer subsidy to Rs 1.71 lakh crore, from Rs 1.86 lakh crore the previous year.
- Reason given for the cut: The government expected a “reduced requirement for imported urea and P&K fertilizers” and more balanced use of nutrients for soil health and productivity.
- Spending pace: Fertilizer subsidy spending in the six months to September crossed 70% of the full year estimate, as per the Controller General of Accounts (CGA), the Centre’s chief accounting office.
- Full year outgo: The total outgo is expected to top Rs 3 lakh crore and could reach Rs 3.50 lakh crore.
Why did the bill rise, and what is the debate?
- War shock: The war in West Asia began a few weeks after the Budget of 1 February. The energy shock and the closure of the Strait of Hormuz pushed up global fertilizer prices.
- Urea and gas: Global prices of urea and LNG rose after the war began and stayed high for a longer period, which ended the expectation that prices would ease.
- Case for a higher subsidy: Food inflation is rising sharply, so the chief economist of Bank of Baroda holds that input costs such as fertilizer must be kept in check.
- Fiscal cost: The Bank of Baroda chief economist expects the fiscal deficit to be higher by up to 0.3% of GDP, a rise already factored in.
Challenges
- Import dependence: India imports urea, P&K fertilizers and gas, so global price shocks pass directly into the subsidy bill.
- Open ended liability: A fixed price for farmers means the subsidy has no upper limit when global prices rise.
- Budget credibility: An estimate built on easing prices was overtaken within months, which weakens the fiscal deficit target.
- Nutrient imbalance: Urea stays far cheaper than P&K fertilizers, which encourages overuse of nitrogen and harms soil health.
Way Forward
- Supply contracts: The Department of Fertilizers should sign long term import contracts for urea, DAP and gas to reduce exposure to spot prices.
- Balanced use: States should promote soil test based application, so that farmers use nutrients in the right proportion.
- Price contingency: The Ministry of Finance should budget a contingency for fertilizer when global prices are volatile.
Conclusion
The Rabi subsidy stands approved, and the year’s fertilizer bill is set to end far above the Budget estimate. What to watch is whether global gas and fertilizer prices ease before the next Kharif season.
Key numbers
- Increase over last Rabi: Rs 24,417.73 crore more than the previous Rabi season.
- Urea allocation, 2026-27: Rs 1.17 lakh crore within the total fertilizer subsidy budget.
- Budget cut from the 2025-26 level: The Centre cut the fertilizer subsidy by over 8%.
- NBS spending in the first half of 2026-27: Rs 33,664 crore (Controller General of Accounts).
Matching Previous Year Question
“[2020] With reference to chemical fertilizers in India, consider the following statements: 1. At present, the retail price of chemical fertilizers is market-driven and not administered by the Government. 2. Ammonia, which is an input of urea, is produced from natural gas. 3. Sulphur, which is a raw material for Phosphoric acid fertilizer, is a by-product of oil refineries. Which of the statements given above is/are correct? (a) 1 only (b) 2 and 3 only (c) 2 only (d) 1, 2 and 3 ANSWER: (b)”
