India’s fertilizer subsidy burden grows as import costs hit multi-year highs

India’s fertilizer subsidy program faces increasing fiscal pressure as import costs, affected by disruptions in the Strait of Hormuz, push procurement prices to multi-year highs. This highlights the strain on the country’s fixed-price fertilizer policy.

According to Agro Spectrum India, the government recently secured a major urea import tender at landed prices of about $959 per metric ton on the east coast and $935 per metric ton on the west coast. A separate tender for diammonium phosphate (DAP) was concluded at $935 per metric ton for the east coast and $930 per metric ton for the west coast. Despite these higher procurement costs, DAP continues to be sold to farmers at approximately 1,350 rupees ($15.70) per 50-kilogram bag under India’s Nutrient-Based Subsidy (NBS) program.

India consumes about 40 million metric tons of urea annually, making it one of the world’s largest fertilizer markets. The country imports approximately 25% to 26% of its urea needs and depends on overseas sources for about 85% of the natural gas used in domestic urea production. This reliance leaves the sector highly exposed to global energy and fertilizer market fluctuations.

The government has budgeted 1.71 trillion rupees (about $19.9 billion) for fertilizer subsidies in fiscal year 2026-27. However, analysts warn that actual spending may significantly exceed this amount as the gap between import costs and regulated retail prices widens. In response, officials have expanded fertilizer procurement from Russia, Morocco, and Canada using alternative shipping routes around the Cape of Good Hope and increased domestic urea production by an estimated 23% through emergency natural gas purchases. India began the Kharif planting season with urea inventories up 10.7% year over year and DAP stocks more than doubling. Maintaining these supply levels is expected to further increase the government’s subsidy burden.

Source: Agro Spectrum India