Fertiliser subsidy tops ₹1.03 lakh crore in five months as crude nears $120

India's fertiliser subsidy outgo crossed ₹1.03 lakh crore in the first five months of 2026-27, against a full-year budget estimate of ₹1.70 lakh crore¹. The Controller General of Accounts figures, reported by BusinessLine on October 25, show more than half the annual provision spent with seven months of the fiscal year still to run¹. A senior government official expects the full-year bill to cross ₹3 lakh crore and possibly touch ₹3.5 lakh crore, the report said¹.

Energy costs are a big part of the reason. Brent crude settled at $115.22 a barrel on October 20, up 87.8% since the start of the year⁴. BusinessLine reported that prices are near $120 as Saudi-Houthi tensions escalate¹.

Wood Mackenzie said India cut gas deliveries to fertiliser plants, refineries and industrial users during the Middle East LNG disruption. Even so, India faced an estimated 1.5 million-tonne reduction in gas demand³. European gas averaged $25.49 per million Btu in September, up 21.9% on August and 131.7% higher than a year earlier, a 52-week high⁵. Imported LNG at those levels lifts the cost of urea made in India and the import parity for cargoes bought abroad.

Imports up, sales down

Urea imports rose 40.5% to 5.589 million tonnes in April to September, from 3.979 million tonnes a year earlier, industry data reported by The Economic Times show². Imports started slowly at 583,000 tonnes in April and peaked at 1.534 million tonnes in July². Domestic output rose 4%².

Local sales fell 4.1% to 18.52 million tonnes. A senior executive at a large urea firm told The Economic Times that poor rainfall deterred farmers from spending on soil nutrients². The monsoon ended 13% below normal, the weakest in more than a decade². The Centre also floated a tender to import 1.7 million tonnes of urea ahead of the rabi season³.

The phosphatic side is tighter. Production of NP and NPK fertilisers fell 35.5% and imports 31.4% in April to September, with sales down 22.2% to just over 6 million tonnes². DAP imports fell 11.2% and DAP sales slipped 0.6%². Sulphur, an input for DAP, has doubled in landed cost since January to about $1,050 to $1,100 a tonne, according to industry estimates³.

Who carries the cost

So far the Centre is carrying it. Finance Minister Nirmala Sitharaman said on October 2 that the government absorbs up to ₹2,700 on each bag of urea while the global cost is about ₹3,000³. Urea's retail price is controlled, which ICRIER says pushes farmers towards too much nitrogen and too little phosphorus and potash⁶.

Non-urea fertilisers work differently. Retail prices of DAP, MOP and NPK are decontrolled and set by manufacturers, while the Centre pays a fixed subsidy⁷. The government is working on differential DAP subsidy rates under the nutrient-based subsidy scheme³. Rates could vary by production route and imported inputs. The change was likely to take effect from the rabi season and was intended to encourage domestic DAP production³. For buyers, that leaves two routes: companies revise retail prices, or the subsidy rises to hold them.

The fiscal squeeze

The Centre's fiscal deficit reached ₹7.10 lakh crore, or 41.9% of the full-year target, by the end of August, with major subsidies at ₹1.87 lakh crore³. Sunil Kumar Sinha is professor of economics at the Institute for Development and Communication. He estimated that a rise in the fertiliser subsidy could widen the 2026-27 fiscal deficit by 0.4% to 0.5% of GDP¹.

Economists see offsets. D K Srivastava, chief policy adviser at EY India, cited the RBI's ₹2.87 lakh crore dividend, tax growth of nearly 13% by mid-September and about 70% of the disinvestment target by end-August. He also pointed to a ₹1 lakh crore economic stabilisation fund. He said the 4.3% fiscal deficit target still looks achievable, with slippage at most to 4.4% to 4.5% of GDP¹. D K Pant, chief economist at India Ratings & Research, said higher fuel and fertiliser spending would weigh on the numbers. But tax and non-tax receipts and disinvestment could keep the fiscal arithmetic from shifting significantly, he said¹.

Srivastava expects crude to stay in a $115 to $120 range for some time. Against the RBI's $95 baseline for the second half, a sustained $20 rise would cut real GDP growth to 7% from 7.1% and lift CPI inflation to 5.7% from 5.2%, he said¹.

What to watch

• The rabi nutrient-based subsidy notification, including the planned differential rates for DAP³.
• Whether the Centre seeks a supplementary demand for grants, with the ₹1.70 lakh crore provision already more than half used¹.
• A sub-committee reviewing fixed costs paid to urea plants, a formula unchanged since 2002-03³.
• Global urea tenders and China's export flows. A report on August 13 said India's urea import offers had fallen 12% as war-driven tightness eased⁸. A report on August 27 said China would ship at least 1.2 million tonnes as part of a recent Indian tender⁸. FAI's website quotes Coromandel International's chief executive saying urea prices will stay around $500 a tonne⁹.
• Rabi sowing and reservoir levels. ICRA cut its 2026-27 agriculture growth forecast to about 1% and flagged low storage³. The Centre has assured states of adequate fertiliser supplies for rabi⁸, and KRIBHCO plans to import 3 to 4 lakh tonnes of non-urea fertilisers for the season¹⁰.