A. Issue in Brief
- India’s fertilizer subsidy is projected at ₹1.9 trillion in 2025–26, exceeding the ₹1.5 trillion agriculture budget, crowding out investments in irrigation, research and infrastructure.
- Of this, ₹1.3 trillion is allocated to urea subsidy alone, with retail prices unchanged for nearly two decades, creating distorted nutrient pricing signals.
- Cheap urea (≈90% subsidised; 45 kg bag at ₹267) incentivises chronic over-application, degrading soils and increasing greenhouse gas emissions.
- Soil degradation now poses a combined food security, fiscal sustainability and climate governance challenge.
Relevance
- GS 3 (Economy / Environment / Agriculture):
₹1.9 trillion fertilizer subsidy (FY26); 40% Nitrogen Use Efficiency; N₂O GWP 272× CO₂; import dependence (75% urea); soil organic carbon decline; climate impact.
B. Structural Background
- Agriculture employs ~45% of India’s workforce but contributes only ~15% of GDP, limiting farmer surplus for soil restoration investments.
- India depends heavily on imports: ~75% for urea, 90% for DAP, 100% for potash, making subsidy bill vulnerable to global shocks.
- In 2022–23, fertilizer subsidy peaked at ₹2.5 trillion due to global price surge after Russia–Ukraine conflict.
- Urea consumption may touch 40 million tonnes in FY26, reflecting structural overuse.
C. Key Dimensions
1. Economic / Fiscal Dimension
- Fertilizer subsidy since FY22 exceeds total agriculture budget, diverting fiscal space from crop insurance, R&D and irrigation.
- Subsidy shields farmers from global price spikes but embeds long-term import dependence and structural fiscal burden.
- Excess nitrogen use reduces marginal productivity, raising cost per unit yield despite higher application rates.
- Proposed reform: modest urea price increase with per-acre Direct Benefit Transfer (DBT) to neutralise income shock.
2. Environmental / Climate Dimension
- Plants absorb only ~40% of applied urea due to declining Nitrogen Use Efficiency (NUE); remainder leaches into groundwater or volatilises.
- Nitrous oxide (N₂O) released has 272 times global warming potential of CO₂.
- Soil emissions account for over 20% of agricultural GHG emissions (NITI Aayog, 2026).
- Agricultural soil emissions rose ~7% between 2011–2019, paralleling a 10% rise in nitrogen fertilizer consumption.
3. Soil Health & Nutrient Imbalance
- Only ~25% of Indian soils have sufficient Soil Organic Carbon (SOC), critical for nutrient retention and microbial health.
- Despite overuse of nitrogen, over 90% of soils remain nitrogen-deficient, due to low organic carbon and poor nutrient retention.
- Micronutrient deficiencies (zinc, iron, sulphur, boron) worsening due to imbalance between N, P and K application.
- Excess nitrogen reduces crop nutritional quality, lowering micronutrient content in food grains.
4. Policy & Governance Dimension
- Under Soil Health Card Scheme, soil sampling often inadequate; extrapolation of single sample to entire village reported.
- Neem-coating of urea and Aadhaar-linked PoS verification reduce diversion but do not correct price distortion.
- Economic Survey recommends triangulating Aadhaar sales data, PM-Kisan database and crop insurance records for targeted cash transfers.
- Political reluctance to raise urea prices stems from fear of anti-farmer backlash.
5. Cropping Pattern & Incentive Structure
- Assured MSP procurement for rice and wheat incentivises cereal cultivation, increasing nitrogen demand.
- Expansion of irrigation shifts farmers from pulses and oilseeds (low fertilizer need) to cereals (high fertilizer intensity).
- Ethanol blending policy increases maize cultivation, further reinforcing nitrogen-heavy cropping systems.
- Urea addiction linked to broader agricultural incentive distortions rather than isolated fertilizer policy failure.
6. Nano Urea Experiment
- Nano urea (500 ml at ₹225) claimed equivalent to 45 kg granular urea, projected to save ₹20,000 crore annually if 25% replacement achieved.
- Field study (Punjab Agricultural University, 2024) reported yield decline in rice and wheat with nano urea use.
- Adoption partly coercive, bundled with granular urea purchases; failed to reduce subsidy burden materially.
7. Import Dependency & Structural Risk
- Urea imports rose 120% year-on-year (Apr–Nov FY26) amid 3.7% domestic output decline.
- DAP imports increased 54%, indicating structural—not supplementary—import reliance (FAI data).
- Import dependence exposes fiscal position to energy price volatility and geopolitical disruptions.
D. Critical Analysis
- Subsidy design distorts relative nutrient prices, embedding structural overuse irrespective of monitoring measures.
- Cash transfer reliability concerns: not indexed to inflation; tenant farmers often excluded due to informal land tenancy.
- Fiscal crowding-out limits transformative investments in irrigation, agro-ecology and crop diversification.
- Soil degradation undermines long-term productivity; declining SOC reduces nutrient holding capacity and yield resilience.
- Reform politically risky but economically and environmentally unavoidable.
E. Way Forward
- Gradual urea price rationalisation with inflation-indexed per-acre DBT, including tenant farmers via crop insurance or FPO databases.
- Incentivise balanced fertilization through nutrient-based subsidy alignment across N, P and K.
- Promote crop diversification away from nitrogen-intensive cereals via MSP reform and assured procurement of pulses/oilseeds.
- Expand organic carbon restoration through composting, green manuring and natural farming initiatives.
- Integrate fertilizer reform within India’s Net Zero 2070 pathway, linking subsidy rationalisation to emission reduction targets.
F. Exam Orientation
Prelims Pointers
- Fertilizer subsidy FY26: ₹1.9 trillion; agriculture budget: ₹1.5 trillion.
- Urea subsidy component: ₹1.3 trillion.
- Nitrous oxide GWP: 272× CO₂.
- Plants absorb only ~40% of applied urea.
- Urea imports rose 120% (FY26 Apr–Nov).
Practice Question (15 Marks)
- “India’s fertilizer subsidy regime reflects a classic case of fiscal distortion with environmental consequences.”
Discuss the economic, ecological and political economy dimensions of urea overuse and suggest reform pathways.
