The Union Budget 2026-27 has signalled a calibrated tightening of the Centre’s subsidy bill, with the sharpest squeeze visible in fertilisers as policymakers weigh structural reforms in nutrient pricing. The allocation for the Ministry of Chemicals and Fertilisers — including pharmaceuticals — has been reduced by ₹14,124 crore in 2026-27, with the steepest curtailment borne by the fertilisers segment.Overall fertiliser subsidy is projected at ₹1.70 lakh crore in FY27, lower than the revised estimate of ₹1.86 lakh crore for the ongoing 2025-26 fiscal. Within this, subsidy on urea is pegged at ₹1.16 lakh crore, while non-urea fertilisers account for ₹54,000 crore.The most significant adjustment is in imported inputs. The outlay for imported urea has been slashed by ₹19,973 crore (FY26 revised estimate of ₹51,972 crore vs FY27 ₹31,999 crore), reflecting both higher domestic production and a strategic push to curb dependence on volatile global markets.
Similarly, allocation for imported phosphatic and potassic (P&K) fertilisers has been reduced by ₹5,000 crore (FY26 revised estimate of ₹25,000 vs FY27 ₹20,000).The total net allocation for the Department of Fertilisers stands at ₹1,70,944.53 crore for FY27. Despite the moderation, fertiliser subsidy remains a substantial fiscal commitment at around ₹1.7 lakh crore.Domestic urea push cushions fiscal burdenThe sharper reduction in imported urea subsidy coincides with India’s rising self-sufficiency in nitrogenous fertilisers. Domestic urea production touched a record over 314 lakh metric tonnes (LMT) in 2023-24, aided by six new plants commissioned over the past six years. India is now about 87% self-sufficient in urea.Urea continues to be sold at a fixed price of ₹242 per 45-kg bag — unchanged since 2018 — with the Centre bridging the gap between production or import costs and the retail price. The subsidy allocation covers both indigenous and imported urea, though the tilt in FY27 clearly favours domestic output.Reform debate gathers paceThe fiscal compression comes alongside a policy rethink flagged in the Economic Survey 2025-26, which has called for a “modest increase” in urea prices — coupled with direct income transfers to farmers on a per-acre basis.The Survey has warned that the current price distortion has skewed fertiliser usage. India’s nitrogen-phosphorus-potassium (N:P:K) ratio has deteriorated from 4:3.2:1 in 2009-10 to 10.9:4.1:1 in 2023-24, far removed from the agronomic benchmark of roughly 4:2:1 for most crops.Excessive nitrogen use, driven by subsidised urea, has contributed to soil degradation, micronutrient depletion and plateauing yields in several irrigated belts. The proposed shift would separate income support from fertiliser pricing, allowing nutrient prices to better reflect scarcity while compensating farmers directly.The Survey has recommended zone-specific transfers indexed to cropping patterns, leveraging digital infrastructure such as Aadhaar-linked fertiliser sales and the PM-Kisan platform. A phased rollout across agro-climatic regions has been suggested to fine-tune benchmarks and address tenancy concerns.(Edited by : Ajay Vaishnav)
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