India's long-standing cheap-urea subsidy model is coming under growing financial and environmental pressure as global fertiliser and energy costs rise, prompting the government to reconsider how fertiliser is supplied and consumed.
Indian farmers use more urea than the United States and Brazil combined, largely because subsidies keep its retail price far below the market cost. Farmers currently pay just Rs 266.50 for a 45-kg bag, while the government has paid more than ten times that amount for some imported supplies. The widening gap has pushed India's fertiliser subsidy bill towards potentially Rs 3 trillion ($31 billion) this fiscal year, well above the budgeted Rs 1.71 trillion, according to a report by The Economic Times.
The situation has been aggravated by geopolitical disruptions, including the Iran conflict and instability around the Strait of Hormuz, which have increased procurement and energy costs. Although recent tender prices have eased from April's peak, renewed disruption could quickly reverse the improvement, as per the report.
Beyond fiscal concerns, excessive urea use is damaging soil health and contributing to groundwater and river contamination, greenhouse-gas emissions and declining agricultural productivity. More than half of over 9 million soil samples tested in 2025-26 showed low organic-carbon levels, highlighting the scale of the problem.
The government has intensified efforts to encourage farmers to reduce chemical fertiliser consumption, with Prime Minister Narendra Modi and officials promoting more balanced nutrient use. Authorities are also testing new fertiliser distribution mechanisms, while some cooperatives have begun rationing supplies to manage demand and subsidy costs.
However, major reform remains politically sensitive because farmers represent a crucial voting bloc, while decades of subsidised fertilisers and government procurement of crops such as wheat and rice have encouraged urea-intensive farming.
A prolonged fertiliser shortage combined with a weak monsoon could also reduce crop production and fuel food inflation in India and countries reliant on Indian agricultural exports, according to ET.
The government therefore faces a difficult balancing act, containing subsidy costs and excessive urea use while protecting farmers, food production and national food security.
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