A sharp correction in imported fertiliser prices after the US-Iran peace deal, coupled with a likely reduction in Kharif crop area due to El Nino and a weak monsoon could help the government keep its fertiliser subsidy expenditure in FY27 close to the Budget Estimate of Rs 1.71 lakh crore, official sources told Financial Express.
This signals a major fiscal relief, as just before the West Asia war ended, the government was staring at near doubling of the subsidy spending on fertilisers on account of the elevated global prices prevailing then of urea and phosphatic fertilisers. Prices of liquified natural gas, the key feedstock for urea, also skyrocketed before quickly falling after the deal was announced.
“We hope the fertiliser subsidy will remain within the Budget estimate. Now, a new factor is El Nino,” a senior government official said on condition of anonymity. “If the cultivated area comes down because of deficient rainfall, fertiliser consumption will also decline correspondingly,” the official said.
The Centre is also stepping up efforts to maximise domestic urea production and reduce dependence on imports as part of its strategy to lower import costs and improve self-reliance, the official said.
“Whatever the fertiliser requirement, there will be no shortage for farmers,” the official stressed. In FY26, India produced about 52 MT of fertilisers while domestic consumption stood at around 72.5 MT of soil nutrients.
In fact, even before the ceasefire between the US and Iran helped stabilise markets, fertiliser prices had begun correcting sharply. National Fertilisers, one of the agencies responsible for urea imports, received bids with a landed cost of $444.9-449.3 per tonne for importing 1.7 million tonnes (MT) of urea last month.
These prices are less than half the contracted rates of $935-959 per tonne discovered in an earlier tender floated by Indian Potash, for importing 2.5 MT of urea in April. The steep decline has largely been driven by China’s decision to ease restrictions on urea exports. Global urea prices have softened further following the ceasefire announced on June 17.
Global prices of Diammonium Phosphate (DAP) have also eased, falling from peaks of more than $890 per metric tonne recently to around $750 per metric tonne.
India imported relatively small quantities of fertilisers during April-June 2026 because of elevated global prices and disruptions caused by the blockage of the Strait of Hormuz.
Although the monsoon has begun, rainfall is still expected to remain below normal in some regions. Since nearly 50% of India’s cultivated area is rain-fed, any rainfall deficit could reduce the area under cultivation and, in turn, lower fertiliser demand.
According to the Agriculture Ministry, total kharif sowing had covered only about 32% of the normal area of 110 million hectares during the corresponding period. In the same period last year, more than 40% of the normal area had already been brought under cultivation.
However, officials expressed confidence that foodgrain availability would remain comfortable because government stocks are currently abundant.
For FY27, the Budget Estimates of food and LPG subsides are Rs 2.28 lakh crore, and Rs 12,084 crore respectively. While a weeding out of ineligible beneficiaries under the free-ration scheme is expected to put a lid on food subsidy, any steep hike in LPG subsidies was averted by raising the prices of commercial LPG when the crude prices surged in the aftermath of the West Asia war.
Recently, state-run olil marketing companies cut commercial LPG prices by ₹183.50 per 19-kg cylinder and aviation turbine fuel by about ₹5 per litre, passing on part of the decline in international oil prices to restaurants, businesses and airlines.