Looming Scarcity of Urea in India

Why in News ?

• India’s urea consumption is projected to reach 40 million tonnes in 2024–25, while domestic production has stagnated around 28–29 million tonnes, leading to growing dependence on imports.
• This widening demand-supply gap threatens fertiliser availability and fiscal stability due to high subsidies and price control distortions.

Relevance:

• GS-3 (Economy | Agriculture | Energy):
  • Fertiliser pricing, subsidies, and fiscal burden.
  • Agricultural productivity, soil health, and balanced fertilisation.
  • Dependence on imports and its impact on energy security.
• GS-3 (Environment):
  • Nitrogen cycle disruption and greenhouse gas emissions (N₂O).
  • Sustainable agriculture and nutrient management.

Basic Facts

• Commodity: Urea – nitrogen-based chemical fertiliser.
• Control: Price-controlled under Essential Commodities Act, sold at a fixed MRP (₹5,360/tonne), unchanged since May 2015.
• Producers: Primarily IFFCO, NFL, Chambal Fertilisers, RCF, KRIBHCO, HURL units.
• Regulator: Department of Fertilisers (Ministry of Chemicals & Fertilisers).

Current Situation

• Consumption (2024–25): ~39.9 MT
• Domestic Production: ~28.1 MT
• Imports: ~11.7 MT (≈30% of total requirement)
• Urea Sales Growth: 3.8% YoY (2024–25), highest since 2021–22.
• Table Trend (1990–2025):
  • 1990–91: 12.8 MT
  • 2010–11: 26.5 MT
  • 2024–25: 39.9 MT → Tripled in 3 decades
• Production Growth: Stagnant; increased only marginally despite new plants.

Key Reasons for Rising Demand

1. Price Distortion:
   1. Urea is cheaper than other fertilisers (like DAP, MOP, NPK).
   2. Current MRP (₹5,360/tonne) vs cost of production/import (~₹24,000/tonne).
   3. Farmers overuse urea due to affordability, ignoring balanced nutrient use.
2. Agronomic Expansion:
   1. Expansion in wheat, mustard, potato, and rabi acreage post-monsoon.
   2. Government’s push for higher foodgrain output and irrigation coverage.
3. Low Price Elasticity:
   1. Even minor increases in crop area or yield goals sharply raise urea demand.

Domestic Production Constraints

• Despite commissioning five new plants (Ramagundam, Gorakhpur, Sindri, Barauni, Talcher) between 2021–23,
  total output stagnated due to:
  • Operational delays and technical issues.
  • Limited gas availability.
  • Ageing capacity at older units.
• Total capacity: ~28.3 MT vs production: ~30.6 MT (2024–25, including overruns).

Dependence on Imports

• India remains world’s 2nd largest urea importer (after Brazil).
• Major import sources: Oman, Saudi Arabia, Egypt, Russia.
• Imports costly due to global price volatility, freight, and rupee depreciation.
• FY25 import bill for urea likely >₹70,000 crore, adding to fertiliser subsidy burden.

Subsidy Burden

• Total fertiliser subsidy (2024–25): ~₹1.9–2 lakh crore.
• Urea alone accounts for ~₹1.3 lakh crore (≈70%).
• Since MRP is fixed, the Centre bears the full differential between cost and selling price.
• Rising imports + high energy costs = severe fiscal strain.

Economic Implications

1. Fiscal Stress: High subsidy outlay reduces fiscal space for infrastructure or social spending.
2. Nutrient Imbalance:
   1. Ideal N:P:K ratio = 4:2:1
   2. Current usage ~8:3:1, leading to soil degradation and declining productivity.
3. Import Vulnerability: Dependence on external markets threatens food security if supply chains are disrupted.
4. Subsidy Inefficiency: Benefits disproportionately flow to large farmers; not directly targeted.

Policy and Reform Options

1. Rationalise Urea MRP:
   1. Gradual increase to reflect part of actual cost.
   2. Reduce overuse and encourage balanced fertilisation.
2. Promote Nutrient-Based Subsidy (NBS):
   1. Currently applied only to non-urea fertilisers.
   2. Inclusion of urea under NBS to promote parity and efficiency.
3. Direct Benefit Transfer (DBT):
   1. Link subsidies directly to farmers rather than fertiliser companies.
4. Enhance Domestic Production:
   1. Fast-track gas allocation and operational stabilisation of HURL and Talcher units.
   2. Incentivise private sector investment.
5. Encourage Alternatives:
   1. Use of nano urea, organic and biofertilisers.
   2. Soil Health Card–based nutrient planning.

Broader Context

• Agricultural Sustainability: Overuse of urea depletes micronutrients, acidifies soils, and lowers yields.
• Climate Concerns: Nitrous oxide emissions from excess nitrogen fertilisation contribute to greenhouse gases.
• Energy Dependence: Urea plants are gas-intensive; India imports ~50% of its natural gas.

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