By Amit Kapoor and Pradeep Puri with Inputs from Ananya Khurana
India’s fertiliser subsidy has long weighed heavily on the exchequer. The revised budget allocation for fertiliser subsidy in FY 2024–25 stood at ₹1.83 lakh crore, slightly lower than the previous year’s allocation of ₹1.88 lakh crore but still vast in scale. Nitrogen-based urea absorbed over 65% of the subsidy, while phosphatic and potassic fertilisers claim the rest under the nutrient-based subsidy (NBS) regime. The budget allocated for fertiliser subsidy for FY 2025–26 at ₹1.56 lakh crore is formidable as well. These figures confirm that the fertiliser subsidy is among India’s largest recurring fiscal commitments, and its structure matters as much as its cost.
The current fertiliser subsidy model, introduced in 2017–18, claims to be a direct benefit transfer (DBT), yet it does not reach the farmers directly or entirely. The funds are transferred directly to fertiliser companies rather than to cultivators. The fertiliser manufacturers are reimbursed only after Aadhaar-authenticated sales at Point-of-Sale (PoS) terminals. This model has improved traceability and curbed fertiliser diversion to some extent, but it has not been able to tackle the problem of artificially low retail prices that fuel fertiliser overuse, damage soil health, and leave scope for misuse.
The urgency of reform was highlighted in the Economic Survey 2015–16, which revealed that up to 65% of subsidised urea never reached small and marginal farmers. Specifically, 41% was diverted for industrial use or cross-border smuggling. PoS authentication introduced in 2016 did reduce diversion, as reflected in declining urea sales, but the core issue persists. According to the Indian Council of Agricultural Research, the fertiliser response ratio dropped from about 13.4 kg of grain per kg of nutrient in the 1970s to just 3.7 kg by 2005, clearly indicating a sharp decline in efficiency. This is largely driven by rampant overuse of cheap nitrogen-based urea, which continues to encourage excessive application and disrupt soil nutrient balance. Skewed fertiliser use does not just degrade soils, it also seeps into our food and water, silently harming public health. Excess nitrogen and imbalanced nutrients have been linked to thyroid disorders, diabetes, and micronutrient deficiencies, turning a farm-level distortion into a national nutrition crisis.
India’s fertiliser policy thus needs a structural overhaul such that it combines DBT to farmers with digital nutrient caps. Instead of routing subsidies through companies, cash should be transferred straight into the farmers’ accounts as season-specific, per-hectare entitlements, enabling fertiliser sales at market prices while preserving affordability. This would restore price signals, discourage overuse, and curb diversion. Agri Stack data can be leveraged to calculate the entitlement and transfer it to the farmers through e-RUPI vouchers with nutrient limits for nitrogen (N), phosphorus (P), and potassium (K), adjustable for soil health. The Economic Survey 2024 endorsed this approach. Like phosphorus and potassium, urea must also be brought under the NBS regime to rectify India’s chronic nitrogen-heavy, imbalanced fertiliser usage. Additionally, robust verification and transparency mechanisms should be in place to make the farmer-DBT system credible and tamper-proof. This is the blueprint for a smarter, fairer fertiliser policy that aligns incentives with sustainability and efficiency.
The fiscal case for reform is compelling. Using the FY 2024–25 actual spends of ₹1.83 lakh crore as a baseline, shifting to a farmer-focused DBT that cuts leakage to say, 10% could save nearly ₹57,000 crore if urea diversion falls from 41% to 10%, and about ₹1 lakh crore if the overall fertiliser subsidy leakage reduces from 65% to 10%. Even on the FY 2025–26 projection of ₹1.56 lakh crore, the potential savings range between ₹49,000 crore and ₹86,000 crore. These figures indicate the substantial amount of fiscal burden that can be reduced.
The benefits go beyond fiscal savings. Price rationalisation, combined with nutrient caps, can curb excessive nitrogen use, restore soil fertility, and reduce groundwater contamination and greenhouse gas emissions. Balanced application of NPK fertilisers can strengthen yields and resilience as climate variability intensifies. Redirecting even half of the subsidy savings toward irrigation infrastructure, soil testing laboratories, and farmer extension services could spark a transformation in productivity and sustainability. Rationalising fertiliser subsidy would not just be a financial reform but an ecological and agricultural reset that India urgently needs.
Despite these measures, farmers may prefer subsidised outlet prices over cash transfers, fearing upfront costs and delays. The solution lies in smart design. Disbursing e-RUPI vouchers before the season, redeemable only for fertiliser, can ease concerns. Implementation should start small and scale smart. It could begin with pilots in diverse agro-climatic zones, then expand to states with integration of Soil Health Cards and Agri-Stack and finally move to a nationwide rollout with public dashboards that track fiscal savings, soil metrics, and NPK balance.
As the goal is smarter subsidy delivery, a DBT to farmers could preserve affordability, restore price signals, reduce diversion, and align incentives for balanced fertilisation. Done right, it can save approximately ₹75,000 crore annually, on average. This amount can alternatively be used to fund irrigation, cold chains, and technology adoption. For a programme that swings with global prices and domestic politics, this reform anchors fertiliser support in data, discipline, and dignity for farmers.
Rationalising fertiliser subsidy through farmer-focused DBT is not just sound economics; it is good governance and a step toward agricultural transformation. The moment to act is here, because the future of Indian farming will be shaped by the choices we make today.
The article was published with The Mint on December 22, 2025.
