Fertilizer subsidy allocation likely to stay steady in FY26 budget

For the current financial year, the government initially allocated ₹1.64 trillion and topped it up with another ₹6,594 crore in December, taking the total to ₹1.7 trillion.

For FY26, fertilizer subsidy, the second biggest subsidy offered by the Centre after food, is likely to be in this range as subsidy utilization in the current fiscal has broadly matched anticipated trend, said one of the persons quoted above. 

Also read |  China's supply cut and global disturbances reduces India’s fertilizer imports

Though the government is likely to start off the next fiscal with a similar subsidy allocation, there is an implicit commitment to meeting any unforeseen spike in requirement, said the person, who spoke on condition of not being named.

Fertilizer subsidy accounts for about two-fifth of all Central subsidies projected at ₹4.28 trillion this fiscal. Of this, the Centre will spend ₹two trillion on food subsidy and ₹11,925 crore on cooking gas.

Sharp rise

The fertilizer subsidy had shot up sharply in FY23 to ₹2.5 trillion when the Ukraine war started. Geopolitical tensions and supply chain disruptions have a direct hit on the Indian budget by way of fertilizer subsidy as India is dependent on imports for some of the fertilizers and natural gas, which is used in producing urea. In FY24 and so far in FY25, the fertilizer subsidy bill has shown a trend of moderation, bringing relief to policy makers. 

In December, the government took Parliament’s permission to give additional subsidy on phosphorous and potash (called nutrient-based subsidy or NBS) in the wake of an uptick in global prices of diammonium phosphate or DAP, a widely-used fertilizer. 

Also read |  FY25 fertilizer subsidy unlikely to see higher than budgeted allocation

In the case of urea, another common plant nutrient, and in the case of muriate of potash, for which India is entirely import- dependent, prices in November were lower than the levels seen a year ago, although urea prices since the beginning of this year had seen an uptick, showed data available from the fertilizer department.

Till November, the Centre’s fertilizer subsidy outgo stood at ₹1.21 trillion, nearly 5% lower than the level seen in the year-ago period, as per data available from the Controller General of Accounts. 

This represents three-fourth of the original outlay of ₹1.64 trillion.  India’s fertilizer subsidy bill has come off its peak seen in FY23 of ₹2.5 trillion when the Russia-Ukraine war impacted the commodity’s price in world markets. The moderation in price from that peak brings relief to policy makers in balancing the budget.

Raw material price dependent

The overall subsidy requirement depends on volatile raw material prices, explained Anand Kulkarni, Director, CRISIL Ratings. “The budgetary allocations have been sufficient to cover the sector’s requirement over the last few fiscal years. Moreover, over the last few fiscal years, the government has announced additional allocations whenever needed to compensate for any higher-than-expected surge in raw material prices," said Kulkarni.

In the case of urea, retail price is fixed by the government while on other plant nutrients, subsidy is given as per rates set by the government.

Kulkarni explained that against the budgetary allocation for fiscal 2025, 74% had been utilized till the end of November 2024 and that this trend is in line with the last fiscal which saw the overall subsidy outlay being adequate. “Hence, the budgetary allocation for fiscal 2025 should also suffice against the expected requirement," said Kulkarni.

Also read | Cabinet approves ₹24,420 crore fertilizer subsidy for 2024 kharif season

India is a big buyer in the global DAP market, buying a fifth of the global output, as per data from the commerce ministry. The annual demand for DAP in India is around 10 million tonnes.

The Parliamentary Standing Committee on Chemicals and Fertilizers highlighted in its March 2023 report that India's foodgrain requirement is projected to reach 300 million tonnes by 2025 and to meet this demand, the country will need about 45 million tonnes of plant nutrients annually to sustain agricultural productivity and support the growing population. 

China is a major source of fertilizers for India. India imported 10.65 million tonne of phosphatic and potassic (P&K) fertilizers in FY24, with 2.25 million tonnes sourced from China, Union fertilizers minister Anupriya Patel said in the Rajya Sabha in August. Seven million tonnes of urea were imported, of which 1.85 million tonnes came from China. 

Queries emailed to the department of fertilizers and to the finance ministry on Tuesday seeking comments for the story remained unanswered at the time of publishing.