Fertiliser subsidy: FY26 bill may rise 20% as prices double

What has triggered the fresh subsidy concern

India’s fertiliser subsidy bill is expected to rise by around 20% in the current financial year as global prices of key nutrients surge amid supply disruptions linked to the Strait of Hormuz. Mint reported that global fertiliser prices have nearly doubled as geopolitical tensions in West Asia disrupted supply chains and raised input costs. Even with higher global prices, officials have signalled that fertiliser MRPs in India are unlikely to change. That implies the bulk of the price shock will shift to the government’s subsidy bill. The near-term policy priority remains protecting farmers from sudden input-cost spikes. But a prolonged disruption risks keeping fiscal pressure elevated.

No MRP hike, higher subsidy instead

Officials said there will be no change in the maximum retail price of fertilisers despite the sharp rise in global prices. A senior official was quoted as saying prices have almost doubled, but there is no change in MRP, and the government will step in through higher subsidies. This approach keeps urea, di-ammonium phosphate (DAP), and potash available to farmers at existing prices. The same official also indicated that additional spending will be required, describing the likely rise in subsidy outgo as “additionalities.” The policy stance is consistent with the government’s broader aim of preventing a cost-led rise in food prices.

Why West Asia and the Strait of Hormuz matter

The spike in fertiliser prices has been linked to disruptions in West Asia, particularly around the Strait of Hormuz, a key global shipping route. India’s dependence on imports for fertilisers and raw materials makes it vulnerable to shipping disruptions, higher freight, and sudden supply tightness. Officials cited that West Asia accounts for around 30% of India’s urea supply and about 30% of DAP requirements. The region also supplies nearly 50% of India’s LNG needs, which is used in fertiliser production. Any disruption across this corridor can affect both availability and landed cost.

India’s import dependence is the core vulnerability

India is the world’s second-largest consumer of fertilisers and the largest importer of DAP and urea. The country meets about 60% of its DAP demand through imports and around 15% of its urea and NPK requirements through imports, as stated in the report. It also relies on imports for key raw materials such as rock phosphate, phosphoric acid, and potash. Separately, the government has recently said the Gulf region provides 20-30% of India’s urea and 30% of DAP, while also supplying 50% of LNG. This bundled dependence means a geopolitical shock can hit multiple links of the supply chain at once.

Fiscal math: subsidy estimates are moving up

Crisil Intelligence projected that for FY26, the fertiliser subsidy could be 14% above the budget at Rs 192,000 crore, and 3% above the revised estimates, driven by elevated DAP and urea imports. The same commentary flagged that absorbing the cost gap to shield farmers can widen the deficit or force expenditure reallocations. Looking ahead, Crisil also cited a projected 20-25% surge in the FY27 fertiliser subsidy linked to the West Asia crisis. Separately, another report highlighted that the FY 2026/27 budget earmarked USD 12.7 billion (INR 1.1 trillion, or Rs 110,000 crore) for urea subsidies, while total fertiliser subsidies could rise to USD 24-25 billion if global shocks persist. An ANI report also referenced a USD 18.6 billion fertiliser subsidy for FY2026-27.

Import buying and price benchmarks are worsening the bill

A fertiliser ministry official, Aparna Sharma, said India expects the subsidy bill to jump about 20% this year due to price rises fuelled by the West Asia crisis. India has placed orders to import a record 2.5 million metric tons of urea at nearly double the price paid two months earlier, as the Iran conflict disrupted supplies. The report described these purchases as about a quarter of India’s annual imports, with potential to tighten global supply further. Crisil noted that in April, some players reported urea import prices of USD 935-959 per metric tonne, and sulphur costs rising 50% to USD 630 per metric tonne (CFR). These benchmarks matter because higher landed costs typically translate into higher subsidy payouts when farmgate MRPs are held steady.

Domestic production constraints add to the stress

Crisil said natural gas shortages, exacerbated by Strait of Hormuz disruption, curtailed domestic urea production by 25% in March 2026. At the same time, another report said the government boosted domestic urea production by 12,000-15,000 tonnes per day through increased LNG supplies. Even so, the scale of demand remains large, with Kharif 2026 season demand estimated at 390 lakh tonnes. The combination of demand peaks, shipping uncertainty, and LNG dependence increases the risk of higher procurement costs. It also makes the subsidy bill more sensitive to short-term movements in global gas and fertiliser prices.

Why farmers may not feel it immediately, but the budget will

With MRPs unchanged, farmers are expected to be insulated from the immediate surge in global prices. The policy intent, as stated, is to keep farming viable and prevent a rise in food prices. But the fiscal channel becomes the main absorber of the shock, with higher subsidy payments to companies selling nutrients below market prices. The pressure is amplified by India’s reliance on imported LNG for urea and imported inputs for complex fertilisers. Data from the ministry showed year-on-year increases as of March: urea up 20%, DAP up over 10%, and MOP up 23%, with further escalation reported after March.

Key numbers at a glance

What analysts say policymakers may prioritise next

Crisil’s Pushan Sharma said the government may need to secure long-term LNG and raw material contracts to reduce exposure to volatile spot markets. The same commentary suggested accelerating domestic capacity, promoting alternatives such as nano urea and nano DAP, and optimising the Nutrient-Based Subsidy framework to reduce structural import dependency while maintaining affordability. Another analysis highlighted that India’s “effective” dependence rises to 68-70% after accounting for upstream inputs such as LNG and chemicals, underscoring why supply shocks transmit quickly into fiscal stress.

Conclusion

The fertiliser price shock linked to West Asia disruptions is pushing India toward a higher subsidy bill even as MRPs stay unchanged. With import dependence high for DAP, urea, and critical inputs like LNG, the immediate impact is likely to show up in government finances rather than farmgate prices. The next steps will hinge on procurement decisions, import logistics through key sea routes, and how quickly supply conditions stabilise ahead of peak seasonal demand.