ICRIER Urges India to Rethink Fertiliser Policy

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  Published in Politics and Government on Saturday, April 4th 2026 at 13:01 GMT by The Financial Express
      Locale: INDIA

New Delhi, April 4th, 2026 - A newly released study by the Indian Council for Research on International Economic Relations (ICRIER) is urging the Indian government to fundamentally rethink its fertiliser policy, recommending a freeze on current subsidy levels and a move towards deregulating urea prices. The report, published today, highlights the escalating financial strain placed on the national budget by fertiliser subsidies, citing rising global input costs and the volatility of the Indian rupee as key drivers of this unsustainable trend.

The current fertiliser subsidy regime, while intended to support farmers and ensure food security, is becoming increasingly precarious. The ICRIER study underscores that simply maintaining the status quo is fiscally irresponsible. Global prices for critical raw materials - ammonia, phosphoric acid, and others - have experienced significant upward pressure in recent years. Coupled with the consistent depreciation of the Indian rupee against major currencies, the fertiliser subsidy bill has swelled, placing a substantial burden on government finances.

However, the ICRIER report doesn't advocate for a complete dismantling of support. Instead, it champions a shift toward a Nutrient-Based Subsidy (NBS) system applied universally to all fertilisers. Currently, NBS is only implemented for phosphatic and potassic fertilisers, while urea - the most widely used fertiliser in India - remains subject to a fixed, centrally determined price and subsidy. Expanding NBS to encompass urea would, according to the report, promote a more efficient and targeted use of fertilisers, encouraging farmers to select products based on actual crop nutrient requirements rather than simply the lowest price.

The logic behind NBS is straightforward: by subsidising nutrients (nitrogen, phosphorus, potassium) rather than the fertiliser product itself, farmers are incentivised to choose fertilisers that deliver the optimal nutrient balance for their crops. This reduces wasteful application, improves soil health, and ultimately enhances agricultural productivity.

Furthermore, the ICRIER study emphasizes the critical need to broaden private sector participation in urea production. Currently, the urea market is dominated by a handful of public sector undertakings (PSUs). Increasing private investment in urea manufacturing would alleviate the reliance on imports, bolster domestic production capacity, and foster competition - potentially leading to lower prices and improved product quality. The report suggests a more open regulatory environment for private companies to enter and thrive in the urea sector.

Perhaps the most contentious recommendation is the deregulation of urea prices. Allowing fertiliser companies to sell urea at market prices, while simultaneously providing targeted subsidies to farmers based on nutrient content, is seen as a crucial step towards a more sustainable and efficient fertiliser market. This approach would allow companies to respond to market signals, optimize production, and invest in innovation. Critics of price deregulation often express concerns about affordability for small and marginal farmers. However, the ICRIER study argues that a well-designed NBS system, coupled with direct benefit transfer (DBT) to farmers, can effectively mitigate these concerns and ensure that subsidies reach those who need them most. DBT, which involves directly transferring subsidies to farmers' bank accounts, minimizes leakage and ensures transparency.

The report anticipates potential challenges in implementing these reforms. Political resistance from farmer groups, logistical complexities in establishing a robust NBS system, and the need for effective monitoring and enforcement are all acknowledged. However, the ICRIER study concludes that the long-term benefits of a more sustainable and efficient fertiliser sector far outweigh the short-term hurdles.

The implications of this report are significant. India's agricultural sector is vital to the nation's food security and economic stability. Addressing the mounting financial burden of fertiliser subsidies and improving the efficiency of fertiliser use are critical steps toward ensuring the long-term health and resilience of the agricultural sector. The ICRIER study provides a compelling roadmap for achieving these goals, urging policymakers to embrace bold reforms and pave the way for a more sustainable and prosperous future for Indian agriculture.