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Fertiliser Subsidy Reform in India: Challenges and Way Forward

23 December 20251 min read
AGRICULTURE & RURALFertiliser SubsidyReform in India:Challenges andWay Forward23 December 2025safalsetu.com

Why in the news

Economists called for an urgent rethink of the fertiliser subsidy, citing its fiscal cost, skewed nutrient use and environmental damage.

About the subsidy

  • The government pays makers or importers the gap between cost of production or import and the retail price farmers pay.
  • Centred on urea, held artificially cheap; now among India’s largest and most distortionary subsidies.

Why it exists

  • Food security: powered the Green Revolution; response ratio about 1:10 in the 1970s.
  • Small farmers: over 85% hold small plots and are shielded from global price swings.
  • Lower cultivation cost, softer food inflation, a cushion against monsoon failure.

Problems and reforms

ChallengeSuggested fix
Nitrogen use efficiency only 35-40%Balanced, precision farming with complex fertilisers and fertigation
Groundwater nitrate pollution; falling soil organic carbonBring urea under Nutrient-Based Subsidy (NBS) to align nitrogen pricing with P and K
Response ratio down to about 1:2.7 by 2015Move gradually to direct income transfers of the PM-KISAN type
20-25% of urea diverted to non-farm usese-vouchers and PoS-based delivery, like e-RUPI
Import dependence exposes the bill to energy shocksAgri Stack targeting by land size, crop and satellite data

Test yourself

1. What share of nitrogen do crops absorb under India's current fertiliser regime, according to the reform notes?

Nutrient use efficiency is only 35-40% for nitrogen.

2. Which approach is suggested to align urea pricing with phosphorus and potassium?

The notes propose placing urea under NBS.

3. Roughly what share of subsidised urea is diverted to non-agricultural uses?

The notes cite 20-25% diversion.