To curb excessive application, the Economic Survey recommended a modest increase in retail prices of highly subsidised urea while transferring an equivalent amount in cash directly to farmers on the basis of their landholding.
“Farmers who already apply nitrogen efficiently gain because they receive the full transfer while spending less at the counter, while those who over-apply face a clear incentive to shift towards balanced fertilisation, soil testing, nano-urea, liquid fertilisers and organic amendments,” the survey has noted.
Cheap nitrogen fuels overuse, harms soils and underwater
It has observed that as long as one nutrient is vastly cheaper than others, its overuse is structurally embedded, regardless of monitoring or enforcement. It stated that excess nitrogen reduces soil organic matter, accelerates micronutrient depletion, weakens soil structure and increases nitrate leaching into groundwater.
At present, urea, which has a share of over 55% in the total consumption fertilizer, is provided to the farmers through 3 lakh retail outlets of the companies 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 85-90%.
The retail prices of phosphatic and potassic (P&K) fertilisers, including Di-ammonium Phosphate (DAP) were ‘decontrolled’ in 2010 with the introduction of a ‘fixed-subsidy’ regime as part of nutrient based subsidy (NBS) mechanism.
The survey suggested re-anchoring fertiliser decisions in soil and crop requirements rather than in administered price distortions. “This can be achieved by separating farmer income support from fertiliser purchase and allowing nutrient prices to convey agronomic scarcity,” it stated.
The government fertiliser subsidy is projected at Rs 1.95 lakh crore in FY26 because of rise in urea consumption and rise in imports. In 2024-25, the government had provided subsidies for soil nutrients at Rs 1.91 lakh crore (Rs 1.18 lakh crore for urea and Rs 49,000 crore for NBS).
Moots price-deficiency payment for farmers
With a huge surplus of rice and wheat stock because of open ended procurement, the survey has also recommended the government to rely on mechanisms such as price-deficiency payments, bonuses and assured offtake mechanisms to stabilise farmer incomes instead of physical purchase of foodgrains.
The current effective central pool rice stock is over 32.5 million tonne (MT), over 3 times the buffer of 7.61 MT for January 1. The current stock with Food Corporation of India (FCI) includes about 37 MT of grain yet to be received from millers.
FCI currently holds 27.12 MT of wheat against a buffer of 13.8 MT.
“A portion of the fiscal savings should be reinvested in post-harvest and value-chain infrastructure—such as oilseed processing, pulse milling, maize drying and ethanol linkages— leveraging public–private partnerships and the agri-infrastructure fund,” it stated.
Overall subsidy burden under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme is likely to cross Rs 2.25 lakh crore in 2025-26, highest since the previous high of Rs 2.72 lakh crore in FY23.
“Rather than altering minimum support price (MSP) or weakening procurement, a calibrated strategy may use savings from improved stock management to support voluntary crop diversification,” the survey noted.
It stated that farmers can be offered financially attractive alternatives to a part of their rice and wheat acreage, particularly in regions where procurement volumes are high but farm profitability remains modest and agro-ecological conditions favour other crops especially pulses and oilseeds.