Urea Subsidy Reform: Why Shift to a Nutrient-Based Direct Benefit
Why in the news
An editorial argued that reform of the urea subsidy is long overdue. The Department of Fertilisers wants its Budget allocation doubled after petrochemical prices jumped once the Strait of Hormuz was blocked.
Key facts
- Projected subsidy: up to ₹3.4 trillion in FY27, compared with the earlier high of ₹2.5 trillion in FY23 after the Russia-Ukraine war.
- Urea support: the government carries about 90 per cent of urea’s real market cost.
- Proposed fix: a nutrient-based, direct-benefit system so that farmers, not companies, receive the subsidy.
- Concerns raised: fiscal sustainability, transparency, fairness, soil health and food security.
Urea vs NBS fertilisers
| Feature | P and K fertilisers | Urea |
|---|---|---|
| Subsidy scheme | Nutrient-Based Subsidy (NBS) | Outside NBS |
| Pricing | Some price adjustment allowed | Administered price; government controls price and subsidy |
| Nutrient | Phosphorus and potassium | Nitrogen |
Problems with the present setup
- Fiscal stress: the bill is unpredictable and climbing fast.
- Diversion: wide gaps between controlled and market prices invite black-marketing and leakage.
- Soil damage: overuse of urea hurts soil quality and long-term productivity.
- Unequal gains: large wheat and rice farmers in certain states capture a disproportionate share.
- Environment: surplus nitrogen causes groundwater nitrate pollution, eutrophication and N2O greenhouse gas emissions.
About Nutrient-Based Subsidy (NBS)
- Began in April 2010 for non-urea fertilisers such as DAP, MOP and complexes.
- The subsidy is fixed per nutrient (N, P, K, S); makers and importers set the maximum retail price and the government covers the difference.
- This partly freed the non-urea market, but urea stayed controlled.
Why urea escaped reform
- It is India’s most-used fertiliser, consumed heavily by wheat, rice and other staples.
- A price rise is politically sensitive because so many farmers are affected, and governments have avoided that cost.
Soil health angle
- Ideal N:P:K for Indian soils: about 4:2:1; actual use in many regions is nearer 10:3:1 or 8:3:1.
- Results: loss of soil organic carbon, falling zinc, boron and sulphur, greater pest susceptibility and weaker response per kg of fertiliser.
- The Soil Health Card Scheme and PM-PRANAM are partial answers, but incentives remain skewed.
Strait of Hormuz link
- A narrow waterway between Iran and Oman joining the Persian Gulf and the Arabian Sea; roughly 20 to 25 per cent of global oil and much LNG trade passes through it.
- Urea is made from natural gas, so a disruption raises gas prices, India’s urea import bill and the subsidy outgo.
Exam angle
- NBS began April 2010; urea is excluded from it.
- Soil schemes mentioned: Soil Health Card Scheme and PM-PRANAM.
- Related terms: N:P:K ratio, eutrophication, direct benefit, Department of Fertilisers.