India’s fertiliser subsidy model is broken; direct income support is the only way forward: Ashok Gulati

Expert commentary from agricultural economist Ashok Gulati has renewed scrutiny of India's fertiliser subsidy regime, arguing that it is structurally broken ...

What Happened

Expert commentary from agricultural economist Ashok Gulati has renewed scrutiny of India's fertiliser subsidy regime, arguing that it is structurally broken and fiscally unsustainable.
Rising global fertiliser prices (driven by energy price volatility) and mounting fiscal pressures are exposing the inefficiencies embedded in the current subsidy architecture.
The central argument is that the current producer-side subsidy model distorts input use, encourages over-application (particularly of urea), and fails to reach the most marginal farmers efficiently.
The proposed alternative is a shift to direct income support to farmers — decoupling support from input purchase decisions and allowing market-determined fertiliser prices.
India's fertiliser subsidy budget stands at approximately ₹1.68 lakh crore for FY 2025–26 (Budget Estimate), making it one of the largest line-item subsidies in the Union budget.

Static Topic Bridges

India's Fertiliser Subsidy Architecture — Urea vs. NBS

India runs two parallel subsidy systems for fertilisers. Urea is governed by a cost-plus model where the government fixes the Maximum Retail Price (MRP) at ₹242 per 45-kg bag (unchanged since March 2018) and reimburses manufacturers the full cost difference as subsidy. All other fertilisers (phosphatic and potassic — P&K) come under the Nutrient Based Subsidy (NBS) Scheme introduced in 2010, under which a fixed per-nutrient subsidy (per kg of N, P, K, and S) is announced each season, and manufacturers/importers can fix their own MRPs above the subsidised threshold. Under NBS, retail prices of P&K fertilisers therefore float with global prices, unlike urea.

Urea: Fixed MRP ₹242/45-kg bag since March 2018; subsidy paid directly to manufacturers/importers (not farmers). Governed by the Urea Policy 2015.
NBS Scheme (2010): Covers 22 grades of P&K fertilisers; subsidy is per-nutrient (N, P, K, S); retail price is market-determined above the subsidy. Administered by the Department of Fertilisers under Ministry of Chemicals and Fertilisers.
Urea is explicitly excluded from NBS — the Commission for Agricultural Costs and Prices (CACP) has recommended bringing urea under NBS, but this has not been accepted.
The total fertiliser subsidy in FY 2025–26 (BE): ~₹1.68 lakh crore; of which urea alone accounts for ~₹1.19 lakh crore.

Connection to this news: The structural complaint is precisely this bifurcation: urea's artificially fixed price (far below market) drives massive over-use of nitrogen relative to phosphorus and potassium, creating nutrient imbalance in soils. The NBS system for P&K is exposed to global price shocks. Both pathways fail to optimise farmer welfare efficiently.

Nutrient-Based Subsidy (NBS) Scheme — Design and Limitations

The NBS Scheme, introduced in April 2010, was designed to promote balanced use of nutrients by linking subsidy to nutrient content rather than to a specific product, and by allowing market pricing above the subsidy floor to create some price signal. It covers 22 grades of P&K fertilisers including DAP (Diammonium Phosphate), MOP (Muriate of Potash), SSP (Single Super Phosphate), and complex fertilisers.

NBS rates are announced season-wise (Kharif and Rabi) by the Cabinet Committee on Economic Affairs (CCEA).
For Kharif 2025: subsidy rates were announced per kg of N, P, K, and S.
Special ad-hoc subsidy for DAP: ₹3,500 per tonne (extended through Rabi 2025–26) to protect farmers from import price spikes.
A key limitation: when global prices of P&K fertilisers surge, manufacturers pass on increases to farmers (since MRP is uncontrolled), reducing affordability despite the per-nutrient subsidy.
CACP has consistently recommended that urea be brought under NBS to reduce N-overuse and to create a more rational, nutrients-balanced framework.

Connection to this news: The recurring disconnect — rising global prices breaking through even the NBS buffer — is the fiscal stress point that the commentary identifies. The NBS model provides partial insulation but not full protection when energy/feedstock costs spike sharply.

Commission for Agricultural Costs and Prices (CACP)

The Commission for Agricultural Costs and Prices (CACP) is a statutory body under the Ministry of Agriculture and Farmers' Welfare that advises the government on Minimum Support Prices (MSPs) for major agricultural crops and also provides recommendations on agricultural input policy, including fertiliser pricing. It was established in 1965 (originally as the Agricultural Prices Commission; renamed CACP in 1985).

CACP recommends MSPs for 23 major crops each Kharif and Rabi season.
It also advises on input cost structures (cost A2, A2+FL, C2) and input policy reform.
Its recommendation to bring urea under NBS remains unimplemented — illustrating the gap between technical economic advice and political feasibility in farm input pricing.
CACP is only advisory; final decisions rest with the Cabinet/CCEA.

Connection to this news: The CACP's long-standing recommendation on urea under NBS directly underlies the expert commentary that the current model is dysfunctional. That this advice has gone unheeded for over a decade illustrates the political economy barriers to fertiliser reform.

Direct Benefit Transfer (DBT) in Fertilisers

Since 2018, India has implemented a DBT mechanism for fertiliser subsidies — however, in an unusual design, the DBT in fertilisers pays the subsidy to manufacturers/importers (not to farmers) after actual sale to a farmer is captured at a point-of-sale (PoS) machine. Farmers present Aadhaar or Kisan Credit Card at PoS devices installed at fertiliser retail outlets; the purchase is authenticated biometrically and recorded on the e-Urvarak DBT portal of the Department of Fertilisers. The subsidy then flows to the company post-sale.

The DBT in fertilisers is a "just-in-time" subsidy to industry, triggered by farmer purchase — not a direct cash transfer to farmers.
It has improved targeting (verifying actual sale to farmers) and reduced diversion to non-agricultural use.
However, it does not change the fundamental incentive structure: farmers still face artificially low prices at the point of purchase, encouraging over-use.
True direct income support (as proposed in the commentary) would mean cash transfers to farmers irrespective of what fertiliser they buy — similar to the PM-KISAN model — decoupling income support from input-use decisions.

Connection to this news: The current fertiliser DBT is a partial reform — it reduces diversion and improves subsidy efficiency for manufacturers, but it does not break the link between subsidy and quantity of input consumed. The reform debate is precisely about moving to PM-KISAN-style unconditional income support.

PM-KISAN as a Model for Direct Income Support

PM-KISAN (Pradhan Mantri Kisan Samman Nidhi), launched in February 2019, provides ₹6,000 per year (in three instalments of ₹2,000) as direct income support to eligible farmer families. It is a universal income transfer, not linked to any specific input purchase — making it the closest existing model to what the proposed fertiliser reform advocates.

Annual outlay: approximately ₹60,000 crore.
Beneficiaries: ~110 million farmer families.
Transfer mechanism: direct to Aadhaar-linked bank accounts.
Limitation: ₹6,000/year is widely considered insufficient relative to actual input costs.
The reform logic: if fertiliser subsidies (₹1.68 lakh crore) were instead converted to income support distributed to all farmers, the per-farmer amount would be substantially larger and not distort input choice.

Connection to this news: The direct income support proposal essentially advocates expanding the PM-KISAN model as a replacement for product-specific input subsidies — a shift from price distortion to income enhancement, leaving fertiliser prices to market dynamics.

Key Facts & Data

Total fertiliser subsidy FY 2025–26 (BE): ~₹1.68 lakh crore (~₹2 lakh crore including off-budget).
Urea subsidy alone: ~₹1.19 lakh crore (FY 2025–26 BE).
Urea MRP: ₹242 per 45-kg bag — unchanged since March 2018.
NBS scheme launched: April 2010; covers 22 grades of P&K fertilisers.
Special DAP subsidy: ₹3,500/tonne (Rabi 2025–26).
DBT in fertilisers: Operational since 2018 via e-Urvarak portal; PoS-authenticated, subsidy paid to manufacturers.
CACP recommendation: Bring urea under NBS — pending for over a decade.
PM-KISAN: ₹6,000/year per farmer family; ~₹60,000 crore annual outlay; ~110 million beneficiaries.
India's fertiliser import dependency: High for P&K fertilisers (India imports nearly all MOP and significant DAP); domestic urea production covers ~85% of demand.
Fiscal share: Fertiliser subsidy constitutes ~3% of total Union expenditure.