The government’s fertiliser subsidy outgo may see a substantial increase in FY27 if the West Asia conflict prolongs, leading to elevated global prices of soil nutrients, officials said. They said the fiscal impact of a possible hike in global prices of fertilisers may not be largely reflected in FY26 subsidy outgo. “The real impact of possible rise in global prices in urea and di-ammonium phosphate (DAP) may push subsidy outgo next fiscal,” an official told FE.
Trade sources said urea prices have increased by 11% to around $600/tonne (free on board) and DAP prices by 5% to $649 per tonne in the last one month. India imports about 30% of its annual fertiliser requirement of around 64-65 million tonne (MT). Countries in West Asia account for 40% of these imports.
Projected fertiliser subsidy
Fertiliser subsidy is projected at Rs 1.86 lakh crore for FY26, an increase of 11% over budget estimate. However, the expenditure could spike further as by February 10, the subsidy outgo has crossed Rs 1.87 lakh crore — Rs 1.28 lakh crore for urea and Rs 58,825 crore for nutrient based subsidy — sources said.
As per the Budget estimate for FY27, the fertiliser subsidy is estimated at Rs 1.7 lakh crore. Sources said the government will have to relook at fertiliser subsidy after the first quarter of FY27 as the current focus is on ensuring that the conflict does not disrupt supplies.
Currently around 10% to 15% of LNG is purchased from the spot market while the rest is sourced under long term contracts with Qatar and the UAE. The LNG, a key feed stock in urea manufacturing imports from Qatar and UAE is shipped through the Strait of Hormuz, which has been blocked because of the conflict.
Last time global conflict impacted the subsidy outgo was in FY23, when fertiliser subsidy was at a record Rs 2.54 lakh crore as shipping of supplies through the red sea was impacted due to Ukraine-Russia conflict. While India imports about 85% of LNG under the long term contract from countries such as Qatar and UAE, the movement of spot prices would reflect the cost of imports in the next fiscal.
Urea, is provided to the farmers at a notified maximum retail price of Rs 242 a 45 kg bag since March 2018, while the subsidy incurred by the government is around 90%. Despite the global fluctuations in prices, the retail DAP prices are maintained at Rs 1,350 per bag for farmers.
The retail prices of phosphatic and potassic (P&K) fertilisers, including DAP were ‘decontrolled’ in 2010 with the introduction of a ‘fixed-subsidy’ regime as part of NBS mechanism. The annual consumption of fertilisers in the country is around 64-65 MT, out of which urea accounts for 40 MT while DAP consumption is around 11 MT. Rest of the consumption is potash (2-3 MT) and complex fertilizers (10 – 11 MT).