Fertiliser subsidy zooms amid unrestrained consumption, weak rupee and geopolitical tensions

The first is under-pricing, especially of urea and di-ammonium phosphate (DAP).

Rising Urea Consumption and Imports (lakh tonnes)

Source: The Fertiliser Association of India.

The maximum retail price (MRP) of urea has been unchanged at Rs 5,360 per tonne since November 2012 and at Rs 5,628 with mandatory neem oil-coating from January 2015. While DAP is technically “decontrolled”, with companies on paper free to charge farmers market-determined prices and the Centre merely paying a fixed per-tonne subsidy, its MRP has also been informally frozen at Rs 27,000 per tonne since the time of the Covid-19 pandemic.

The under-pricing has, in turn, led to urea consumption rising from below 30 million tonnes (mt) in 2017-18 to 35 mt in 2020-21 and a likely 40 mt-plus this fiscal based on sales till December. With domestic production not commensurately going up – actually falling after peaking at 31.4 mt in 2023-24 – imports of urea have soared and may top 10 mt in 2025-26 (see table).

In the case of DAP, consumption has come down from 11.9 mt in 2020-21 to 9.3 mt in 2024-25 and a projected 8.9 mt in the current fiscal. Under-pricing here has resulted in shortages and reports of black-marketing of this fertiliser having 46% phosphorus (P) content.

Farmers have, moreover, substituted scarce DAP with complex fertilisers containing nitrogen (N), P, potassium (K) and sulphur (S) in varying proportions. Some of these fertilisers having less P are, in fact, retailing at higher prices than DAP. Thus, as against the informally fixed MRP of Rs 27,000 per tonne for DAP, the corresponding rates are Rs 29,000 for ‘20:20:0:13’ and Rs 39,000-40,000 for ‘10:26:26:0’ and ‘12:32:16:0’. Only single super phosphate (SSP), which has just 16% P and 11% S, is selling at a lower MRP of around Rs 11,500 per tonne.

Higher consumption from under-pricing apart, a second source of the fertiliser subsidy’s possible over-shooting could be global prices alongside the rupee’s weakening and geopolitical conflicts.

In the most recent January tender of National Fertilizers Ltd, imported urea was contracted at a landed cost and freight price of $424.8-426.8 per tonne. Although more or less the same as a year ago, there are concerns about global prices hardening with India’s annual imports crossing 10 mt amid unchecked growth in consumption of this super-subsidised nitrogenous fertiliser.

In the other fertilisers and intermediates/inputs, landed import prices per tonne are now higher than a year back: DAP ($677 versus $635), muriate of potash ($349 versus $283), phosphoric acid ($1,290 vs $1,060), rock phosphate ($200 versus $175) and sulphur ($570 versus $190).

Some of this price hardening has also been due to wars, both ongoing and feared. Iran, for instance, is a significant exporter of urea and ammonia. Any US strike on the Islamic republic, which routes a lot of its shipments through the United Arab Emirates and China, can potentially push up world urea prices.

Global sulphur prices have already surged because of Ukrainian drone attacks on Russian oil refineries, reducing production by a major global supplier that has also banned exports. Low Russian supplies have prompted other big producers – QatarEnergy, Saudi Aramco and Abu Dhabi National Oil Company – to raise prices. This could put further upward pressure on Indian fertiliser companies, impacting even substitutes to DAP such as ’20:20:0:13′ and SSP.

To add to the problem is the rupee, which has weakened from 86.6 to 91.9-to-the-dollar over the last one year. That will only add to the goverment’s fiscal challenge of containing the fertiliser subsidy bill, while balancing the political compulsions of under-pricing nutrients.