India's massive fertilizer subsidy program, which cost the exchequer over ₹1.9 trillion in the 2024-25 fiscal year, is in dire need of a complete, end-to-end overhaul. The current framework is creating a perfect storm of fiscal drain, agricultural inefficiency, and serious environmental and health hazards, prompting calls for a shift to direct cash transfers and market-based reforms.
The Staggering Cost and Plummeting Efficiency
The financial burden of the fertilizer subsidy is immense and growing. While the budget for the current fiscal year was set at under ₹1.6 trillion, actual expenses are likely to overshoot this estimate significantly. This figure does not even include the hidden subsidy on natural gas, a key input for the fertilizer industry, which pays roughly half the market price of up to $13 per million British thermal units.
Despite this enormous expenditure, the system's effectiveness is collapsing. Nutrient Use Efficiency (NUE)—the measure of how much applied fertilizer is actually absorbed by crops—has dropped alarmingly. For nitrogen-rich urea, NUE is below 35%, while for phosphorous it is around 20%. Potassium shows a wider range of 50-80%. This inefficiency is compounded by diversion, where subsidized fertilizer is resold at higher prices.
Agricultural economist Ashok Gulati highlights a critical decline: the fertiliser-to-grain response ratio has fallen from about 1:10 in the 1970s to a mere 1:2.7 by 2015 in irrigated areas. This means pouring more subsidized fertilizer into the system is essentially wasting scarce public money for diminishing returns.
Ecological Damage and Skewed Fertilizer Use
The policy failure extends beyond economics into ecology and public health. India's farm value addition per unit of land is just 38% of China's. While China uses double the fertilizer quantity, it achieves far greater output due to a better-balanced NPK (Nitrogen, Phosphorous, Potassium) ratio and superior technology.
The ideal NPK combination is 4:2:1. However, India's current mix is a heavily skewed 10.9:4.4:4. The heavy subsidy on urea incentivizes its overuse, often without the necessary complementary proportions of P and K. This imbalance has three devastating consequences:
- Excess urea is lost to the atmosphere as nitrous oxide, a potent greenhouse gas that accelerates climate change.
- It leaches into groundwater as nitrate, contaminating drinking water and posing severe health risks.
- It promotes excessive green vegetation growth without a proportional increase in grain yield.
Furthermore, the subsidy regime actively discourages the adoption of innovative, complex fertilizers with optimally mixed nutrients, locking farmers into an inefficient and harmful cycle.
The Path to Reform: Direct Transfers and Market Freedom
The solution lies in a fundamental policy shift. Experts argue it is time to stop routing subsidy payments to fertilizer companies. Instead, the total subsidy sum should be provided directly to farmers as cash support, proportionate to the land they cultivate.
Farmers should be identified as cultivators—not necessarily owners—of eligible farmland. Once this database is accurately established, financial transfers would be straightforward and equitable. With direct income support, farmers would pay market prices for fertilizers, guided by expert advice on the optimal nutrient mix for their specific soil. This would drive efficiency, reveal genuine demand, and create space for farmers to optimize their overall operations.
Concurrently, the fertilizer industry should be freed from control to innovate and produce advanced products like nano and complex fertilizers for sale at market-determined prices.
On the input side, India must also reduce its dependence on expensive imported LNG for fertilizer production. A strategic push for the gasification of abundant domestic coal could provide a cheaper, more secure feedstock. This move would also support climate goals by enabling gas-based power generation to balance intermittent renewable energy supply.
The conclusion is clear: India's fertilizer sector requires sweeping, bold reforms to rescue it from being a source of fiscal waste and environmental harm, transforming it into a pillar of sustainable and productive agriculture.
