India’s Finance Minister Nirmala Sitharaman indicated that the government may maintain retail fertiliser prices for farmers at current levels, following a model similar to the approach adopted during the Covid-19 pandemic. Speaking at an event in Mumbai on Saturday, Sitharaman highlighted the government’s previous strategy of absorbing rising global fertiliser costs without passing them on to farmers, despite significant increases in international prices.

Global prices for key fertilisers have surged sharply since early March amid ongoing geopolitical tensions in West Asia, a region crucial to India’s fertiliser supply chain. Urea prices have nearly doubled, rising from approximately $460 per tonne to around $850 per tonne, while diammonium phosphate (DAP) prices increased by 25-50 percent to between $850 and $1,000 per tonne. Urea and DAP are the most widely used fertilisers in India’s agricultural sector.

In response to these price shocks, the Union Cabinet approved on Wednesday an increase of 10-21 percent in subsidy rates per kilogram for non-urea fertilisers under the nutrient-based subsidy (NBS) scheme for the kharif 2026 season. This subsidy hike is projected to cost the government about ₹41,534 crore, representing an approximate 12 percent rise over subsidies paid in the previous season.

West Asia’s significance lies in its provision of 20-30 percent of India’s urea and about 30 percent of DAP imports, as well as nearly half of the country’s liquefied natural gas (LNG) supplies, which are essential for domestic urea production. However, ongoing regional conflict has disrupted the availability of critical raw materials such as ammonia, sulphur, and sulphuric acid used in the manufacture of phosphatic and potassic fertilisers.

While current stocks are sufficient to meet immediate fertiliser demand, industry experts warn that the subsidy burden could escalate further if global prices remain high. The government’s fertiliser subsidy for fiscal year 2027 was budgeted at ₹1.7 trillion, which is 8.4 percent lower than the revised estimate of ₹1.86 trillion for FY26. Nonetheless, the FY26 revised estimate itself reflected an upward revision of more than 11 percent from the original budget, driven by record consumption amid elevated prices.

Data reveals that by February 2026, fertiliser subsidy expenditures had already exceeded the FY26 revised estimate, reaching around ₹1.88 trillion. Concurrently, domestic fertiliser production has weakened significantly. March production levels dropped to a 13-year low, with total fertiliser output declining 24.6 percent year-on-year. Urea output fell nearly 27 percent to approximately 1.8 million tonnes, while phosphatic and potassic fertiliser production contracted between 16 and 24 percent to roughly 0.9 to 1 million tonnes.

These developments underscore the challenges faced by India’s agricultural sector as it navigates the intertwining pressures of global supply disruptions and domestic fiscal constraints, prompting policymakers to consider maintaining subsidy support to shield farmers from rising input costs.