The Fertiliser Industry in India
Kartavya Desk Staff
Source: IE
Subject: Agriculture
Context: The Uttar Pradesh government has recently banned the sale of non-subsidised specialty fertilisers by urea manufacturers, citing tagging (forced cross-selling) concerns.
• This move has sparked a debate on the stifling nature of government controls in an industry already struggling with rigid price caps and distribution mandates.
About The Fertiliser Industry in India:
What it is?
• The fertiliser industry is the backbone of India’s food security, acting as a bridge between industrial manufacturing and agricultural productivity. While technically a commercial sector, it functions as a policy-supported backbone where the government dictates every major variable—from the price at which a product is sold to the specific district where a railway rake must be unloaded.
Key Data and Facts:
• Massive Consumption: In FY 2024-25, total fertiliser consumption stood at approximately 65.3 million tonnes (mt), with Urea alone accounting for roughly 40 mt.
• Production Milestone: In January 2026, India recorded its highest-ever monthly P&K (Phosphatic and Potassic) production of 15.76 lakh metric tonnes.
• Fiscal Burden: The fertiliser subsidy allocation for 2026-27 is earmarked at ₹1.71 lakh crore, reflecting the massive state expenditure required to keep prices low.
• Import Dependency: India remains heavily dependent on imports for raw materials, including 100% of its Potash and nearly 90% of its Phosphates.
• Strategic Shift: Nano-fertilisers (Nano Urea and Nano DAP) are being aggressively promoted through 300,000+ PMKSK centers to reduce the traditional subsidy bill.
Current Controls Governing the Industry:
• Price Capping (Urea): The MRP of urea has remained virtually frozen at ₹266.5 per 45-kg bag since 2012, regardless of rising input costs.
E.g. Companies like NFL and IFFCO must sell at this price despite high global natural gas prices, recovering the difference as a subsidy.
• Conditional Decontrol (NBS): Under the Nutrient Based Subsidy (NBS), P&K fertiliser prices are technically free, but the Centre sets an indicative MRP.
E.g. The ₹1,350 price tag for DAP has been maintained through flexible subsidy adjustments to prevent farmer backlash during global price spikes.
• Movement Control (ECA): Under the Essential Commodities Act, the Department of Fertilisers (DOF) prepares a strict Agreed Supply Plan for every company.
E.g. A company cannot move a rake to a high-demand district in Punjab if the DOF’s monthly plan has allocated that stock to Bihar.
• Tagging & Sales Bans: State governments exert ground-level control by banning or restricting the sale of non-subsidised products.
E.g. The UP Government’s 2026 ban on non-subsidised fertilisers prevents firms from selling premium products like calcium nitrate through their own networks.
• Branding Standardization (ONOF): The One Nation One Fertiliser scheme mandates that all subsidised fertilisers be sold under the single brand name Bharat.
E.g. High-quality manufacturers like Chambal or Coromandel can only use 1/3rd of the bag space for their own brand, neutralizing brand value.
Implications of Excessive Control:
• Soil Health Deterioration: Fixed low prices for Urea lead to its over-application, skewing the N:P:K ratio to nearly 11:4:1 against the ideal 4:2:1.
E.g. Excessive nitrogen use in Punjab and Haryana has led to soil salinity and declining crop responsiveness to fertilisers.
• Stifled Innovation: When companies are banned from selling premium, non-subsidised products, they lose the incentive to invest in R&D.
E.g. The UP ban discourages firms from introducing high-efficiency specialty nutrients that could promote fertigation and precision farming.
• Negative Investor Sentiment: Constant policy flip-flops and retrospective bans deter private and foreign investment in domestic manufacturing.
E.g. Analysts note that investment in new urea plants remains stagnant because manufacturers recover only a fraction of costs at the retail point.
• Fiscal Fragility: The government’s subsidy bill is highly sensitive to global shocks, creating a subsidy trap that drains the national exchequer.
E.g. The 2025-26 subsidy overshoot (rising from ₹1.57L cr to ₹1.86L cr) was driven by geopolitical tensions affecting raw material imports.
• Operational Inefficiency: Micromanagement of logistics often leads to artificial shortages or black-marketing at the local level.
E.g. In late 2025, reports from Chitrakoot (UP) showed farmers in long queues due to local distribution bottlenecks despite adequate national stock.
Way Ahead:
• Bring Urea under NBS: Move Urea into the Nutrient Based Subsidy framework to correct price distortions and encourage balanced nutrient use.
• Direct Benefit Transfer (DBT) to Farmers: Shift the subsidy from the manufacturer to the farmer’s bank account, allowing market forces to determine retail prices.
• Decriminalize the Sector: Remove non-subsidised fertilisers from the Essential Commodities Act to reduce the Inspector Raj and encourage ease of doing business.
• Incentivize Green Fertilisers: Introduce a Production Linked Incentive (PLI) for Nano-fertilisers and Green Ammonia to reduce import and subsidy dependence.
• Rationalize Taxation: Address the inverted GST duty structure (where raw materials are taxed higher than the finished product) to improve company cash flows.
Conclusion:
The fertiliser industry remains a relic of the Permit Raj, where government control over pricing and distribution has created a cycle of soil degradation and fiscal strain. While the recent UP ban aims to protect farmers from tagging, it ultimately sacrifices long-term innovation and investor confidence for short-term administrative ease. A transition toward market-linked pricing and direct farmer support is essential to ensure India’s Aatmanirbhar fertiliser future.
Q. Analyse the economic rationale behind fertiliser subsidies in India. Analyse how the present subsidy architecture influences farmer input behaviour and cropping choices. Propose reforms to improve efficiency without compromising affordability. (15 M)