Urea prices have plunged; so why is fertilizer subsidy bill under strain?
Global urea prices have fallen sharply through 2026 even as import prices of DAP (di-ammonium phosphate) and MOP (muriate of potash) have risen, more than offsetting the urea-side relief.
The net effect is that India's overall fertilizer subsidy bill for FY27 is at risk of exceeding the Budget Estimate, straining government finances.
The Union Budget had pegged the FY27 fertilizer subsidy at roughly ₹1.71 lakh crore, but elevated global prices (partly linked to West Asia supply disruptions) have pushed subsidy spending to a large share of the annual allocation within the first few months of the fiscal year.
Retail prices to farmers for urea, DAP, and MOP have remained administratively fixed and largely unchanged, meaning the entire burden of global price volatility is absorbed by the exchequer rather than passed on to farmers.
Nutrient Based Subsidy (NBS) Scheme
The NBS scheme, introduced on 1 April 2010 by the Department of Fertilizers (Ministry of Chemicals and Fertilizers), governs subsidy on phosphatic and potassic (P&K) fertilizers such as DAP and MOP. Under NBS, the government fixes a flat per-kg subsidy rate for each nutrient — Nitrogen (N), Phosphorus (P), Potassium (K), and Sulphur (S) — announced annually (and revised seasonally), with additional subsidy for secondary/micronutrient fortification. Unlike urea, DAP and MOP have de-controlled maximum retail prices (MRP), so manufacturers can adjust MRP within limits while the government's per-nutrient subsidy stays fixed — meaning a spike in global P&K prices raises company costs and either raises farmer prices or increases pressure for a higher subsidy payout.
The subsidy strain described in the article is a direct NBS-mechanism effect — global DAP/MOP price increases are absorbed as higher subsidy under NBS rather than passed to farmers, while urea's separate, statutory price-control regime is delivering the opposite (falling import cost) trend.
Urea Subsidy under the Fertilizer (Control) Order, 1985
Urea is a "scheduled fertilizer" under the Essential Commodities Act, 1955, and its maximum retail price is statutorily fixed and uniform nationwide under the Fertilizer (Control) Order, 1985 (administered by the Department of Fertilizers). The government pays manufacturers/importers the difference between this controlled low retail price and the actual cost of production/import (the "subsidy" component), historically indexed to the Import Parity Price for imported urea.
Key Details
- A 45-kg bag of urea sells to farmers at a fixed, heavily subsidised MRP (around ₹266.5 per bag as of 2026), regardless of the market cost of production or import.
- Global (landed/import) urea prices had fallen to around $390 per tonne by mid-2026 from nearly $1,000 per tonne earlier, easing the urea component of the subsidy bill.
- Urea subsidy is disbursed to manufacturers through the Direct Benefit Transfer (DBT) in Fertilizers system, linked to Point-of-Sale verification at retail.
The article's core tension — "urea prices have plunged, so why is the subsidy bill under strain" — arises because urea and P&K fertilizers sit under two different subsidy architectures (statutory price control vs. NBS), and a favourable move in one does not offset an adverse move in the other.
One Nation One Fertilizer ("Bharat" Brand)
Launched to standardise branding across all subsidised fertilizers under a single brand name "Bharat" (e.g., Bharat Urea, Bharat DAP, Bharat MOP, Bharat NPK), the scheme aims to eliminate the multiplicity of company-specific brand names farmers previously had to navigate and to improve transparency of the government's subsidy support printed on every bag.
Key Details
- Administered by the Department of Fertilizers, Ministry of Chemicals and Fertilizers.
- All subsidised fertilizer bags must display the "Bharat" brand and a single-window logo under the scheme's Fertilizer Control Order provisions.
- Complements the NBS and urea subsidy regimes by standardising presentation, not the subsidy calculation itself.
Even as the subsidy amount for DAP/MOP/urea fluctuates with global prices, the underlying "Bharat" branding and MRP-labelling requirement remains the same — relevant for distinguishing branding reform from subsidy-mechanism reform in exam questions.
- FY27 fertilizer subsidy was budgeted at approximately ₹1.71 lakh crore; the bill is projected to rise due to a spike in DAP/MOP import costs.
- Landed urea prices fell from near $1,000/tonne to around $390/tonne in 2026, but this decline has been offset by higher DAP and MOP import costs.
- Urea is regulated under the Fertilizer (Control) Order, 1985, with a fixed farmer-facing MRP; DAP and MOP are subsidised under the Nutrient Based Subsidy (NBS) scheme introduced in 2010.
- The Department of Fertilizers, Ministry of Chemicals and Fertilizers, is the nodal body for both the NBS scheme and the One Nation One Fertilizer ("Bharat" brand) initiative.