MC EXCLUSIVE Fertiliser subsidy bill likely to rise 28% to Rs 2.2 lakh crore in FY27 amid Iran war, rising energy prices: Govt official

India imports significant quantities of fertilisers, making domestic fertiliser prices highly sensitive to global markets and freight disruptions.

India’s fertiliser subsidy bill for FY27 could exceed Rs 2.20 lakh crore against the Budget estimate of Rs 1.71 lakh crore as rising global energy prices and disruptions linked to the Iran war push up production and import costs of key fertilisers, a senior government official said.

The official said currently, there are adequate supplies due to the ongoing lean demand season, but warned that the real risk lies in the next fiscal if global energy prices remain elevated.

“The concern is about the next financial year. If the current geopolitical situation continues, it will definitely have an impact on us and could affect multiple sectors,” the official told Moneycontrol, on condition of anonymity.

“The subsidy budget will rise very high. The provision for the next financial year is around Rs 1.7 lakh crore, but we know it will cross Rs 2 lakh crore, maybe at Rs 2.2 lakh crore. The question is how much it will exceed that level. We are internally making the assessments and have not yet reached the final figure,” the official added.

The Union Budget has provided Rs 1.71 lakh crore for fertiliser subsidy in FY27, including around Rs 1.16 lakh crore for urea subsidy and about Rs 54,000 crore for non-urea fertilisers under the nutrient-based subsidy (NBS) regime.

Fertiliser demand to rise from May

The government has earmarked nearly Rs 31,999 crore for imported urea in FY27 and about Rs 20,000 crore for imported phosphatic and potassic fertilisers.

The official said fertiliser demand remains subdued at present as the country is in a lean agricultural period.

“This is a lean period for fertilisers. Our demand normally starts rising in May and peaks in June. Even if everything was normal, fertiliser demand would have been lower at this time,” the official said.

However, officials cautioned that panic buying and hoarding can sometimes occur when concerns about supply emerge.

“Once fertilisers move to the state level, enforcement under the Essential Commodities Act is the responsibility of state and district authorities,” the official said.

Dependence on urea remains high

Officials also flagged concerns about India’s heavy dependence on urea fertiliser and its implications for soil health.

“India has a very high dependence on urea. Scientifically also we have been told that this overdependence will ultimately have a negative impact on farmers and soil health,” the official said.

“There is a scientifically recommended ratio of nitrogen, phosphorus and potassium fertilisers of 1:2:4. But in practice, nitrogen use in India is extremely high. Farmers tend to use far more urea because it is cheap,” the official added.

Gas supply relief for fertiliser plants

The government has also taken steps to improve gas supply to domestic fertiliser plants to support production.

“Earlier our plants were receiving gas at about 60 percent of their requirement. Now it has increased to around 70 percent. Natural gas has been placed under essential commodity priority, and the fertiliser sector has moved to priority category two. That is a significant relief for us,” the official said.

However, he said sustained increases in global gas prices could still raise the subsidy burden significantly if the geopolitical situation continues to disrupt energy and fertiliser markets.

Subsidy sensitive to global prices

India sells urea to farmers at a government-controlled price of Rs 266.50 per bag, while fertiliser companies are compensated for the difference between the retail price and the actual production or import cost. This makes the subsidy outgo highly sensitive to global energy and fertiliser prices.

A farmer buys a sack of urea for Rs 266.50. On average, the government compensates companies at around Rs 1,400 to Rs 1,500 per bag depending on the cost.

Rising global energy prices have further increased concerns around the subsidy bill. Asian spot liquefied natural gas (LNG) prices – the primary feedstock for manufacturing urea – have climbed to around $25.4 per MMBtu, while crude oil prices briefly surged above $119 per barrel amid tensions in West Asia, according to recent reports.

Higher gas prices increase the cost of producing fertilisers at domestic plants and also raise global fertiliser prices, making imports more expensive. Since urea is sold at a fixed retail price, the government has to bear the additional cost through higher subsidies.

India imports significant quantities of fertilisers such as diammonium phosphate (DAP) and muriate of potash (MOP), making domestic fertiliser prices highly sensitive to global markets and freight disruptions.