Why This Is The Right Time To Reform India's Fertiliser Sector

On May 12, 2026, Prime Minister Narendra Modi made an unusual appeal to the country's farmers. He asked them to cut their use of chemical fertilisers (urea and DAP in particular) by as much as half, and to move towards natural farming. This was not only an environmental message but an economic one. India is spending enormous sums on fertiliser, much of it bought with money from abroad, and the Prime Minister was asking the country to use less of something it can no longer easily afford.

Why, then, does India need to reform its fertiliser sector at all?

Begin with a single number. A farmer in India buys a 45-kilogram bag of urea for about 266 rupees. The real cost of that bag (what it would sell for without help from the government) is close to 4,000 rupees. The government pays the difference. This help is called a subsidy, and it is meant to keep farming affordable. But the gap has grown so wide that it now causes more problems than it solves.

The first problem is cost. The fertiliser subsidy is today one of the largest single expenses in the entire Union Budget. For 2026-27, the government has set aside more than 1.7 trillion rupees (rising further this year), money that could instead have built irrigation canals, rural roads or schools. This year, the bill is climbing sharply.

In April 2026, a war in the Gulf shut a crucial shipping route — the Strait of Hormuz — through which much of the world's fertiliser and gas passes. India suddenly had to buy urea abroad at 959 dollars a tonne, almost double what it paid two months earlier. A single order, for 2.5 million tonnes, used up nearly a quarter of the year's import budget in one afternoon.

The second problem is waste. Because urea is sold so cheaply, farmers use a great deal of it, far more than the soil needs. Scientists recommend that the three main plant nutrients, nitrogen, phosphorus and potassium, be used in a balance of roughly 4:2:1. In Indian fields, the real balance is closer to 11:4:1.

Too much urea, too little of the rest. The Union minister for fertilisers, J.P. Nadda, has himself said that farmers use four bags where two would do. The extra urea does not even help the crop. Only about a third of it is taken up by the plant; the rest escapes into the air as a harmful greenhouse gas or sinks into the groundwater. Cheap urea is quietly damaging both the soil and the water.

The third problem is leakage. When something is sold far below its real price, it tends to be misused. By the government's own estimates, roughly one bag in five of subsidised urea never reaches a crop. It is diverted to factories that use it as an industrial chemical, or carried across the border, where it sells for much more. Money meant for farmers ends up in the wrong hands. Neem-coated urea has solved this issue, but the leakage remains partially.

India is spending more, getting less, and losing a large share along the way. This is why reform is needed, and why this moment, with prices high and the problem visible, is the time to act.

What should be done? Four steps stand out.

First, pay the farmer directly. Instead of making the fertiliser bag cheap, the government can transfer the money straight into the farmer's bank account, based on the size and soil quality of the land. India already has the tools for this: the Aadhaar identity system, bank accounts for nearly everyone, and soil health cards for every farm. The farmer still gets the support; the bag no longer needs to be sold below its real price.

Second, let the price of urea rise to its true level. The huge gap between 266 rupees and 4,000 rupees is the very thing that tempts people to overuse urea and to divert it. Close the gap, and the temptation disappears. The direct payment in the first step protects the farmer from the higher price.

Third, treat urea like the other fertilisers. Since 2010, phosphorus and potassium fertilisers have been handled under a fairer system that links the subsidy to how much nutrient the bag contains. Urea was left out of that system. This single exception is what pushed farmers towards overusing urea. Bringing urea into the same system would help restore balance to the soil.

Fourth, reward what works. Today, the government supports only ordinary granular urea, even though liquid urea sprayed onto leaves is absorbed far better and wasted far less. The subsidy should follow the method that works, not only the one that is old.

For forty years, expert committees have recommended reforms much like these, and for forty years, they have been set aside, because cheap urea is hard to take away once given. But the crisis of 2026 has changed the arithmetic. When the product itself becomes scarce and costly, the old habit becomes unaffordable. The Prime Minister has named the problem. The window to fix it is open, and it will not stay open for long.

(Note: The author is a public policy analyst. Views expressed in this article are his own.)