For decades, India’s fertiliser subsidy regime has shielded farmers from volatility in global fertiliser and energy markets, playing a crucial role in supporting agricultural production and food security. However, by insulating domestic fertiliser prices from international price movements, the current subsidy framework has also created a significant fiscal vulnerability. Sharp increases in global fertiliser, feedstock, and energy prices are automatically transmitted into higher government subsidy expenditure, placing considerable pressure on public finances. The disruption of the Strait of Hormuz in late February 2026 has brought this vulnerability into sharp focus. As the principal maritime corridor for India’s imports of urea, di-ammonium phosphate (DAP), liquefied natural gas (LNG), ammonia, sulphur, and rock phosphate, any disruption to this critical chokepoint has far-reaching implications for fertiliser availability, production costs, and subsidy requirements. The crisis underscores that fertiliser security can no longer be viewed solely through the lens of agriculture; it is inextricably linked to energy security, fiscal sustainability, supply chain resilience, and India’s broader economic and strategic security.
This policy brief assesses the fiscal implications of the geopolitical crisis for India’s fertiliser sector under three alternative scenarios for Financial Year (FY) 2026–27 (FY27). It estimates that the fertiliser subsidy could increase to INR 2.42 trillion under an optimistic scenario, which assumes a 2 percent decline in fertiliser consumption due to the anticipated El Niño conditions in 2026. This assumption is deliberately conservative. During the previous two consecutive El Niño years (2014–15 and 2015–16), fertiliser consumption did not decline; instead, it grew by an average of 4.5 percent annually. The assumed reduction therefore reflects the possibility of a stronger-than-usual El Niño affecting cropped area and input use. Under a moderate stress scenario, the fertiliser subsidy is projected at INR 2.85 trillion, while under a prolonged disruption of the Strait of Hormuz, it could rise to INR 3.32 trillion. The latter scenario assumes that domestic fertiliser production increases by 2 percent. India’s fertiliser subsidy for FY27 is budgeted at INR 1.71 trillion, which is around 0.4 percent of Gross Domestic Product (GDP) of INR 393 trillion projected for FY27 (Ministry of Finance, 2026). Under the three scenarios assessed in this policy brief, the subsidy requirement is projected to increase by INR 0.7–1.6 trillion, which would increase total fertiliser subsidy burden to INR 2.42–3.32 trillion, about 0.6–0.8 percent of India’s GDP (FY27). The analysis illustrates how India’s existing fertiliser subsidy architecture automatically transmits external geopolitical and energy market shocks into substantial fiscal liabilities.
The brief argues that the current crisis is not merely a temporary disruption in fertiliser supply chains, but a stress test of India’s fertiliser policy and subsidy architecture. It exposes deep structural vulnerabilities, including heavy dependence on imported fertilisers and feedstocks, the continued price control of urea, distortions within the Nutrient-Based Subsidy (NBS) framework, and the absence of strategic fertiliser reserves to buffer external shocks.
More importantly, the crisis presents a rare window of opportunity to undertake long-overdue structural reforms that can strengthen both fiscal sustainability and supply resilience.
The policy brief proposes a comprehensive reform agenda that includes the gradual decontrol of urea through a farmer-centric Direct Benefit Transfer (DBT) mechanism, rationalisation and expansion of the NBS framework, promotion of balanced and sulphur-based nutrient management, diversification of fertiliser import sources and feedstocks, establishment of strategic fertiliser reserves, and accelerated investments in domestic production of green ammonia and other low-carbon fertiliser inputs. More fundamentally, the brief argues that fertiliser policy must move beyond its traditional role as an agricultural support instrument. In an increasingly uncertain world characterised by geopolitical tensions, climate change, and volatile global commodity markets, fertiliser security should be viewed as a strategic national priority—integral to India’s food security, fiscal stability, energy resilience, and long-term economic competitiveness.
