Fertiliser subsidy FY26: costs rose even before war

Subsidy crossed FY26 revised estimates before March shock

India’s fertiliser subsidy bill breached the Union government’s revised estimate (RE) for FY26 even before the West Asia conflict hit the sector in March. Data from the Controller General of Accounts showed the outgo had crossed the FY26 RE by almost 1% in February. The early overshoot matters because it suggests the pressure on the subsidy pool was building ahead of the latest supply and price disruptions. The backdrop includes higher fertiliser consumption and a jump in imports, both of which raise the cost of keeping retail prices stable for farmers.

The government’s FY26 fertiliser subsidy provision in the revised estimate was ₹186,000 crore, up from the original budget estimate of ₹167,000-168,000 crore referenced in reports. With fresh geopolitical stress and higher input prices, multiple agencies and reports now flag upside risks to FY27 estimates as well.

Import dependence rose sharply in FY26

Industry data cited in the report showed that between April and January of FY26, India imported close to 83% more urea than in the corresponding period of the previous year. Over the same period, imports of DAP rose by almost 40%. These numbers underline how supply-side constraints and demand patterns can quickly spill into the subsidy bill, especially when global prices are volatile.

Import dependence remains structurally significant for key products and inputs. Crisil Ratings noted that around 20% of urea and about one-third of complex fertilisers (primarily DAP) are imported. The Middle East remains a key sourcing region for both imports and inputs, making the system sensitive to disruptions in West Asia.

Cabinet raises non-urea subsidy for kharif 2026

Against the surge in global prices linked to West Asia tensions, the Union Cabinet approved a 10% to 21% increase in per kilogram subsidy rates for non-urea fertilisers for kharif 2026 under the Nutrient-based Subsidy (NBS) regime, compared with kharif 2025. The decision is expected to cost about ₹41,534 crore, around 12% higher than the previous season.

After the decision, the per kg subsidy on nitrogen was raised by 10% versus last kharif season. The per kg subsidy on phosphorus went up by 21%, while sulphur rose by 21.07%. The policy objective, as described in the reports, is to shield farmers from the pass-through of global price spikes and supply disruptions.

Retail prices kept steady for urea and DAP

The higher subsidy also implies the Centre intends to keep DAP, the second-largest fertiliser consumed in India, available at a stable retail price. Reports said DAP will continue to be sold at ₹1,350 per 50 kg bag, with the Centre bearing the additional cost. For urea, farmers will continue to get it at ₹266 per 45 kg.

A statement quoted in the report from Chirag Jain, Partner - Agri and Allied Sector at Grant Thornton Bharat, described the ₹41,500-crore support as timely to mitigate supply disruptions and price volatility arising from the West Asia conflict. While views on adequacy may differ, the design is clear: retail stability is being funded through higher budgetary support.

LNG shock adds to subsidy risk via costlier domestic production

A separate set of updates highlighted the impact of energy markets on fertiliser costs. Natural gas supply to fertiliser plants reportedly rose to 75% to 80%, recovering from a dip to around 60% during the conflict period, but the recovery relied on additional LNG bought from the spot market at higher prices. LNG purchases were cited at around $19.5 per mBtu, up nearly 70% from the $11 to $12 per mBtu range before the conflict.

In a PTI report dated March 30, officials said restricted gas availability meant supply was limited to about 80% of demand, requiring companies to bridge the gap via spot LNG. Aparna S Sharma, Joint Secretary in the Department of Fertilisers, said India had adequate stocks to meet kharif demand and described the situation as “vulnerable,” but managed strategically.

FY27 budget math: non-urea allocations and overshoot risk

For FY27, the Centre budgeted ₹54,000 crore for non-urea fertilisers out of a total fertiliser subsidy allocation of ₹170,781 crore. This non-urea figure was almost 10% lower than the FY26 revised subsidy estimate for non-urea fertilisers of around ₹60,000 crore.

Reports cautioned that unless global prices of finished products such as DAP and other complex fertilisers fall significantly, or input costs like sulphur, ammonia and sulphuric acid ease, the fertiliser subsidy could overshoot FY27 budget estimates. Separately, the government sought parliamentary approval for an additional ₹19,230 crore of fertiliser subsidy for the current fiscal year, reflecting how quickly the requirement can change.

Supply preparedness for kharif: stocks, imports, gas allocation

Morgan Stanley’s note, cited in the report, said India remains vulnerable to supply disruption and fertiliser price volatility, with agriculture accounting for 20% of GDP. As of early April 2026, it said India had secured 18 million metric tonnes against a requirement of 39.05 million tonnes for the summer sowing season, with about 46% already in stock.

Government sources said the Centre is working on measures to improve domestic stocks for the immediate kharif season and later rabi season. Steps mentioned include enhancing natural gas supplies to fertiliser plants and discussions with countries to step up emergency imports of fertilisers and urea.

What ratings agencies expect if disruptions persist

Crisil Ratings warned that prolonged disruptions could reduce domestic fertiliser production by 10% to 15% and lift the subsidy bill by about ₹20,000 to ₹25,000 crore over what was budgeted for FY27. It also said the overall subsidy budget could rise by 12% to 15% from initial estimates of ₹171,000 crore for FY27 if elevated input costs and imported fertiliser prices persist for a quarter.

CareEdge Ratings, in a separate estimate cited, put the potential rise in subsidy outgo at about ₹38,000 crore over the budgeted ₹170,000 crore. These are scenario-based assessments, but they highlight the link between energy markets, imports, and fiscal support.

Key numbers at a glance

Market impact and why it matters

For listed fertiliser companies, the immediate focus tends to be on working capital, input-cost pass-through, and the timing of subsidy receivables. Reports noted that manufacturers may face margin pressure as key raw materials have risen by double digits, while ammonia prices were cited as up about 24% since the start of the conflict. While the subsidy mechanism is designed to stabilise farmer prices, delays in reimbursements can still affect balance sheets.

For the broader market, fertiliser subsidy trends influence fiscal arithmetic and can affect expectations around supplementary grants. The government’s stated intent to maintain retail prices of urea and DAP adds clarity for demand stability, but it also raises the probability of higher-than-budgeted outgo if global prices and freight remain elevated.

Conclusion

India’s fertiliser subsidy pressures were visible even before the West Asia conflict, with the FY26 outgo crossing revised estimates by February and imports rising sharply through April to January. The Cabinet’s higher non-urea subsidy for kharif 2026, costlier spot LNG, and supply-chain risks now set the frame for FY27 budgeting. In the coming months, the government is expected to revisit subsidy allocations and continue measures on gas supply and emergency imports as kharif demand builds.