India’s fertilizer policy needs an end-to-end rethink: What we have today is something of a travesty

India needs to reform its policy for fertilizers. The subsidy bill on these farming inputs was above ₹1.9 trillion in 2024-25, and while this fiscal year’s budget allotted under ₹1.6 trillion, the actual expense could go higher. This figure does not reflect the subsidy on natural gas used as an input by our fertilizer industry, which pays only about half the regular price (of up to $13 per million British thermal units).

Yet, this huge subsidy has increasingly been going waste. Nutrient Use Efficiency, which measures how much of the applied fertilizer—not of the total sold at subsidized rates, a portion of which gets diverted for resale at higher prices—is actually absorbed and used by crops has dropped to below 35% for nitrogen-rich urea (N), 20% for phosphorous (P) and a range of 50-80% for potassium (K).

“Nationwide, the fertiliser-to-grain response ratio (a measure of the additional unit of grain to be had by applying an additional unit of fertilizer) has fallen from about 1: 10 in the 1970s to barely 1: 2.7 by 2015 in irrigated areas,” according to agricultural economist Ashok Gulati. Simply increasing the quantity of subsidized fertilizer, thus, is to squander scarce fiscal resources.

Farm value addition per unit of crop-sown land in India is just 38% of that in China. While the People’s Republic uses double the quantity of fertilizer that we use, it gets significantly more output from that because of a better balanced ratio of N, P and K fertilizers, apart from superior farm technology.

The ideal NPK combination is 4: 2: 1. Our current mix is 10.9: 4.4: 4. Since urea is heavily subsidized, farmers use more of it—often without complementary proportions of P and K.

Excess urea has three effects. Some of it is lost to the atmosphere as nitrous oxide, a climate warmer. Some leeches into ground water as nitrate, interfering with the nutrition of those who drink it and posing other health hazards. It also raises green vegetation without a proportionate rise in grain yield.

Our subsidy regime does not just incentivize an adverse fertilizer ratio, it also inhibits the adoption of complex fertilizers with optimally mixed crop nutrients.

India must overhaul its subsidy regime. It is time to abandon sending subsidy payments to fertilizer companies, which should be freed to make innovative products such as nano and complex fertilisers for sale at market prices. The subsidy sum could instead be sent directly to farmers as cash support in proportion to the area they cultivate.

Let farmers be identified as cultivators—and not necessarily owners—of each tract of subsidy-eligible farmland. Once this is properly determined, financial transfers would be easy and just. Farmers would accept market prices for fertilizers if they are guided on the best mix for their soil type and learn to appreciate the space created for them to optimize farming. This would drive efficiency and reveal actual shortages (if any).

We must also push for the gasification of coal, which is abundant in India, instead of using pricey LNG imports as fertilizer feedstock. Gasifying coal for gas-based electricity generation would also serve our climate goals, as it could bridge gaps in renewable power supply. In all, we need sweeping reforms in this sector.