Fertiliser Reforms for Food Security

Fertiliser Sector Reforms Needed for India’s Food Security

Syllabus:

GS-3:

Agricultural Resources, Mobilization of Resources, Direct & Indirect Farm Subsidies

GS-2:

Government Policies & Interventions

Why in News ?

The ongoing West Asia conflict involving Iran, Israel, and the U.S. has disrupted global energy and fertiliser supply chains, raising concerns over India’s heavy import dependence. With the fertiliser subsidy bill expected to cross ₹2 lakh crore by FY27, the crisis has revived debate on urgent policy reforms in India’s fertiliser sector.

Geopolitical Crisis Exposing Fertiliser Supply Vulnerabilities:

• West Asia tensions have highlighted India’s dependence on the Persian Gulf for fertiliser inputs and energy supplies.
• Strategic maritime chokepoints like the Strait of Hormuz handle a major share of global oil and gas trade, making disruptions highly impactful.
• Rising tensions triggered a sharp spike in global energy prices, affecting fertiliser production costs.
• The crisis demonstrates how geopolitical shocks can disrupt India’s agricultural input security.
• Ensuring fertiliser security is integral to India’s food security, making policy reforms urgent.

India’s Heavy Import Dependence in Fertiliser Sector

• India consumes around 40 million tonnes (Mt) of urea annually, but domestic production stagnates around 30 Mt.
• The remaining demand is met through imports exceeding 10 Mt, which may rise further in FY26.
• About 85% of natural gas used in urea production is imported, making fertiliser production energy dependent.
• Over 80% of ammonia and sulphur imports come from the Gulf region.
• India relies almost entirely on imports for potassic fertilisers (MOP) and 90–95% for phosphatic raw materials such as rock phosphate.

Energy Market Volatility Affecting Fertiliser Production

• Natural gas, the primary feedstock for urea manufacturing, is heavily imported.
• In FY25, India imported 27 Mt of LNG worth about $15 billion, with Qatar accounting for nearly half.
• Due to supply disruptions, Asian LNG prices surged from $10/mmBtu to nearly $24/mmBtu within two weeks.
• To manage shortages, the government prioritised gas allocation for households and transport sectors.
• As a result, fertiliser plants received only 70% of their normal gas supply, threatening domestic urea production.

Rising Import Costs and Fiscal Burden

• India imported 243 Mt of crude oil worth $137 billion in FY25, with nearly half sourced from the Middle East.
• Brent crude prices rose from $66 to nearly $120 per barrel within weeks after tensions escalated.
• Rising costs also affected LPG imports, which account for two-thirds of India’s cooking gas consumption.
• Domestic LPG prices increased by ₹60 per cylinder, reflecting global price volatility.
• Consequently, India’s fertiliser subsidy bill may cross ₹2 lakh crore by FY27, compared with a budgeted ₹1.7 lakh crore.

Need to Diversify Fertiliser Import Sources

• India must reduce reliance on Gulf countries for fertiliser raw materials and inputs.
• Expanding imports from Africa, Central Asia, and Latin America can diversify supply chains.
• Overseas investments in fertiliser mineral reserves and mining projects should be expanded.
• Establishing a dedicated fertiliser investment fund of around $1 billion could help Indian firms acquire stakes in global fertiliser assets.
• This strategy would shift India from import dependency to investment-led supply security.

Urgency of Fertiliser Subsidy and Pricing Reforms

• India’s fertiliser subsidy regime creates distorted pricing incentives, encouraging excessive urea consumption.
• The current policy keeps urea prices artificially low, leading to imbalanced nutrient use.
• Experts recommend Direct Benefit Transfer (DBT) of fertiliser subsidies to farmers instead of manufacturers.
• Gradual deregulation of fertiliser prices could improve efficiency and reduce fiscal burden.
• These reforms would promote balanced use of nitrogen (N), phosphorus (P), and potassium (K).

Alternative Policy Options for Fertiliser Regulation

• If subsidy reforms are politically difficult, the government may impose quantitative restrictions on fertiliser sales.
• Restrictions could be based on farm size, cropping pattern, and recommended nutrient doses.
• State agricultural universities’ guidelines could guide fertiliser application norms.
• With the development of AgriStack, targeted distribution systems could become feasible.
• Another option is to bring urea under the Nutrient-Based Subsidy (NBS) scheme, aligning it with other fertilisers.

Challenges in India’s Fertiliser Sector:

• High Import Dependence: India relies heavily on imported fertiliser feedstocks such as natural gas, rock phosphate, and potash, exposing the sector to global price volatility.
• Geopolitical Risks: Conflicts in the Middle East, a key supplier region, can disrupt supply chains and threaten agricultural productivity.
• Distorted Subsidy Structure: The heavy subsidy on urea compared to phosphatic and potassic fertilisers encourages excessive nitrogen use and soil nutrient imbalance.
• Fiscal Pressure: Rising global prices have sharply increased India’s fertiliser subsidy bill, straining government finances.
• Domestic Production Constraints: Limited natural gas availability and technological limitations hinder expansion of domestic fertiliser manufacturing capacity.
• Inefficient Usage: Excess fertiliser use reduces soil fertility and environmental sustainability, causing groundwater contamination and soil degradation.
• Policy Implementation Issues: Attempts at reform often face political resistance and farmer concerns about rising fertiliser prices.
• Logistics and Distribution Inefficiencies: Leakages and diversion in fertiliser distribution lead to inefficient subsidy utilisation.
• Limited Resource Exploration: India has not adequately explored domestic fertiliser mineral reserves.
• Weak Overseas Investments: Compared with countries like China, India has limited strategic investments in overseas fertiliser assets.

Way Forward for Fertiliser Sector Reforms:

• Diversify Import Sources: India should expand fertiliser imports from Africa, Central Asia, and Latin America to reduce reliance on the Gulf region.
• Overseas Resource Acquisition: Establish a $1 billion fertiliser investment fund to support Indian companies acquiring stakes in global fertiliser mines and production facilities.
• Promote Domestic Exploration: Accelerate exploration of phosphate and potash reserves within India to strengthen self-reliance.
• Reform Subsidy Mechanism: Introduce Direct Benefit Transfer (DBT) to farmers to reduce leakages and improve subsidy targeting.
• Integrate Urea into NBS Scheme: Bringing urea under the Nutrient-Based Subsidy system can promote balanced fertiliser usage.
• Encourage Balanced Nutrient Application: Promote awareness about optimal NPK ratios through agricultural extension services.
• Strengthen AgriStack: Use digital agriculture platforms to implement targeted fertiliser distribution and monitoring.
• Improve Domestic Production Capacity: Invest in energy-efficient fertiliser plants and green ammonia technologies.
• Promote Organic and Bio-fertilisers: Encourage sustainable alternatives to reduce chemical fertiliser dependency.
• Strategic Stockpiling: Maintain fertiliser reserves similar to strategic oil reserves to buffer against global supply shocks.

Conclusion:

India’s fertiliser sector stands at a critical juncture as geopolitical tensions expose vulnerabilities in supply chains and subsidy systems. Structural reforms, diversification of imports, and balanced nutrient management are essential to ensure fertiliser security, fiscal sustainability, and long-term food security while reducing dependence on volatile global markets.

Source: IE

Mains Practice Question:

India’s fertiliser sector is heavily dependent on global supply chains and subsidy-driven pricing mechanisms. Discuss the challenges arising from this dependence. Examine the need for fertiliser policy reforms, including diversification of imports, subsidy rationalisation, and the integration of urea under the Nutrient-Based Subsidy framework.