Rethinking India’s Fertiliser Policy & Need For Reform

Syllabus: GS3/Agriculture; Economy

Context

• Recently, Indian states imposed restrictions on the sale of several non-subsidised speciality fertilisers, raising questions about policy coherence in India’s fertiliser sector, as Prime Minister of India has repeatedly emphasised the need to reduce chemical fertiliser consumption to promote sustainable agriculture and reduce import dependence.

India’s Fertiliser Challenge

• It lies in balancing three critical objectives simultaneously i.e. ensuring food security, maintaining soil health, and reducing import dependence and subsidy burden.
• Indian agriculture has become heavily dependent on chemical fertilisers, especially urea and Di-Ammonium Phosphate (DAP) since the Green Revolution.

Major Dimensions of India’s Fertiliser Challenge

• Excessive Dependence on Chemical Fertilisers: India consumes over 60 million tonnes of fertilisers annually, and  is among the world’s largest consumers of fertilisers.
  • The ideal Nitrogen-Phosphorus-Potassium (NPK) ratio should be 4:2:1, whereas in many Indian states it exceeds 8:3:1 due to overuse of nitrogenous fertilisers.
• Economic Implications: India remains heavily dependent on imports for fertilisers and fertiliser raw materials such as phosphate rock, potash, natural gas, and ammonia.
  • In 2025–26, fertiliser imports reportedly reached nearly $27.2 billion.
  • Geopolitical tensions in West Asia and disruptions around the Strait of Hormuz could further escalate costs.
  • It creates three major vulnerabilities i.e. pressure on foreign exchange reserves, fiscal burden due to subsidies, and exposure to global supply shocks.
• Environmental Implications: A large portion of fertilisers applied in fields is not absorbed by crops.
  • It leads to water pollution, soil degradation, greenhouse gas emissions, and decline in biodiversity.
  • Nitrogen leakage and groundwater contamination have become major ecological concerns.
• Regional Imbalance in Usage: States like Punjab, Haryana, and Uttar Pradesh consume disproportionately high amounts of fertilisers due to intensive farming practices.
  • It has worsened soil fatigue, water depletion, and ecological stress.

Evolution of India’s Fertiliser Policy

• Green Revolution Phase: During the 1960s and 1970s, the government promoted fertilizer use to increase crop productivity.
  • Objectives: Achieve food self-sufficiency; support intensive agriculture; and ensure affordable fertilisers for farmers. It led to the introduction of fertiliser subsidies, controlled prices, and public sector participation.
• Retention Price Scheme (RPS): The government compensated manufacturers for the difference between production cost and selling price.
  • Outcome: Increased fertilizer availability, and high subsidy burden on government finances.
• Nutrient-Based Subsidy (NBS) Scheme, 2010: The government shifted phosphatic and potassic fertilisers to a nutrient-based subsidy system.
  • Aim: Promote balanced fertilizer use, and encourage competition and efficiency. However, urea remained outside NBS and continued under price control.

Key Features of India’s Current Fertiliser Policy

• Heavy Subsidisation: India provides one of the world’s largest fertiliser subsidies.
  • Major Subsidised Fertilisers: Urea, Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP).
  • The subsidy ensures affordable prices for farmers but distorts nutrient consumption patterns.
• Urea Price Control: Urea prices remain highly regulated and significantly cheaper than other fertilisers.
  • Consequence: Farmers disproportionately use urea, leading to nutrient imbalance.
• Direct Benefit Transfer (DBT) System: Introduced to improve transparency and reduce leakages.
  • Features: Subsidy transferred to fertiliser companies after sale; and Aadhaar-linked verification through PoS machines.

Contradictory Policies of States

• Ban on Speciality Fertilisers: States such as Uttar Pradesh, Madhya Pradesh and Maharashtra have reportedly restricted the sale of non-subsidised fertiliser products, including nano fertilisers, bio-fertilisers, water-soluble fertilisers, liquid fertilisers, micronutrients, and bio-stimulants.
  • These products are generally used for high-value horticultural crops and are scientifically approved under the Fertiliser Control Order (FCO) after testing by ICAR.
• Concerns:
  • Policy Inconsistency: States are discouraging alternatives that improve nutrient efficiency, while the Union government advocates reduced dependence on conventional fertilisers.
  • Discouragement to Innovation: Companies invest heavily in research and development of advanced nutrient products. Restrictive policies reduce incentives for innovation and technological adoption.
  • Impact on Ease of Doing Business: The bans undermine regulatory certainty and negatively affect private sector participation in agricultural modernisation.

Government Initiatives Toward Reform

• PM-PRANAM Scheme: The PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth incentivises states to reduce chemical fertiliser use.
  • Objective: Promote sustainable and balanced nutrient management.
• Nano Urea Promotion: IFFCO’s nano urea initiative seeks to improve nutrient-use efficiency.
  • Benefits: Reduced fertilizer consumption, lower transportation cost, and improved nutrient absorption.
• Neem-Coated Urea: Introduced to reduce diversion and improve nitrogen efficiency.
  • Impact: Slower nitrogen release, and reduced wastage.
• Soil Health Card Scheme: Provides farmers with scientific recommendations for nutrient application.

PM-Kisan 2.0: A Possible Alternative

• Direct Income Support Instead of Product Subsidies: India should gradually shift from fertiliser subsidies to direct income support for farmers through an expanded PM-Kisan framework.
  • Under such a model, fertiliser prices would become market-determined, farmers would receive assured income support, nutrient use decisions would become more rational, and market distortions would reduce.
• Potential Benefits:
  • Efficient Fertiliser Use: Farmers would adopt fertilisers based on crop requirements rather than subsidy distortions.
  • Fiscal Prudence: Leakages and excessive subsidy burdens could decline.
  • Environmental Sustainability: Balanced nutrient application would improve soil and water health.
  • Farmer Empowerment: Income support provides flexibility and choice to cultivators.

Reforming India’s Fertiliser Subsidy Regime

• India’s fertiliser subsidy system remains product-specific and price-distorting. Subsidies are concentrated mainly on urea, making it artificially cheap compared to balanced nutrients.
  • It has led to overconsumption of subsidised fertilisers, soil nutrient imbalance, diversion and misuse, and rising subsidy burden on the exchequer.
• In recent years, fertiliser subsidy expenditure has crossed ₹2 lakh crore during periods of global price spikes.

Way Forward: For Fertiliser Policy Reform

• Shift from Product Subsidy to Income Support: There is increasing support transitioning toward direct farmer income support models such as an expanded PM-Kisan framework.
  • Advantages: Rational fertiliser use, reduced subsidy distortions, and greater farmer choice.
• Promote Balanced Nutrient Use: Policy should encourage bio-fertilisers, nano fertilisers, organic manures, and micronutrients.
  • Balanced fertilisation improves both productivity and sustainability.
• Encourage Precision Agriculture: Technologies such as drip irrigation, fertigation, and foliar nutrient application can significantly reduce fertilizer wastage.
• Reduce Import Dependence: India needs to diversify import sources, strengthen domestic fertiliser production, and invest in green ammonia and alternative technologies.
• Strengthen Cooperative Federalism: State governments should align with national sustainability goals rather than restricting scientifically approved speciality fertilisers.

Source: IE