India's Fertiliser Subsidy Reform

The system of fertiliser subsidies in India has been instrumental in enabling many farmers in the country to acquire nutrients at affordable rates. Nonetheless, the price structure of the subsidies programme leads to an imbalance in nutrient acquisition. While urea – the fertiliser that provides nitrogen is sold at a highly regulated price, several fertiliser products that provide phosphatic and potassic nutrients have relatively open prices.

Such an issue impacts buying decisions such that when there is a cheaper nutrient than other available options then chances are high that it will be used excessively.

Such practices have adverse impacts beyond just the costs of using fertilisers. Too much use of nitrogen can lead to nutrient imbalance, contamination of groundwater and low nutrient utilisation. Moreover, lack of phosphorus, potassium, sulphur and micronutrients is detrimental to the growth of crops and soil fertility.

It should be noted that such an issue does not arise out of intentionality but because farmers are operating in an economic environment that encourages cheap production.

Why Direct Benefit Transfer Deserves Attention

India already implements DBT in fertilizer distribution, but the process is different from the traditional cash transfer in welfare programs. Subsidies are disbursed to fertilizer producers based on the sales of fertilizers verified using Aadhaar-authenticated point-of-sale transactions. Subsidies are not regularly credited to each farmer’s bank account.

In July 2026, the government announced that there were no plans for transferring fertilizer subsidies directly into farmers’ accounts since there was a partial coverage of farmers in the database. In other words, any direct cash transfer scheme would be based on substantial policy shifts.

The new system could gradually shift some funds to farmers, for example, in the form of predictable seasonally-based entitlements depending on cultivated areas and local needs.

Thus, such an approach could minimize the distortion of demand caused by artificially low-priced fertilizers. Farmers would become more flexible and choose a suitable combination of fertilizers instead of being induced to use one subsidized fertilizer.

Nevertheless, cash transfer should not replace affordable fertilizers with insufficient entitlements. Entitlements would depend on local prices, local agricultural activities and changes in cost of inputs, otherwise small farmers may get worse off than they were before.

Why a Sudden Shift Could Backfire

A reform should consider the variations of agriculture within the country. For example, a small farmer farming rainfed lands faces different challenges from a large one farming on irrigated lands. Additionally, tenant farmers and those without updated land records may also find it difficult to prove their eligibility under a badly designed scheme.

A uniform handout, based on land holdings alone, may leave out those who actually till the land. Besides, a shortage of fertilizer in local markets could leave farmers without fertilizers despite having the money in their accounts.

There is yet another issue, and that is, farmers require access to proper input at appropriate times. A reform in subsidies without considering the seasonality, accessibility of rural banks, and price changes could affect sowing and yields negatively.

However, the solution lies in adopting reform incrementally. Pilot schemes in varied agro climatic zones can help ascertain whether a farmer-oriented input scheme will increase nutrient balance without affecting production and cost.

Soil Health Must Guide Every Rupee

Financial reforms are insufficient to solve soil degradation. It is necessary for India to develop its scientific backing, which would enable its farmers to make informed decisions.

The Soil Health Card Scheme already offers information related to soil nutrients and recommendations regarding fertilizers. These should be based on soil testing facilities that explain the economic advantages of balanced nutrient usage.

Furthermore, farmers require easy access to organic manures, bio-fertilizers, fortified inputs, and suitable substitutes. Crop residues, composting, and nutrient management can provide improvement in soil structure and nutrient content when applied in appropriate conditions.

It is important to measure the impact of the reforms based on their results rather than just the cost saved from the subsidy bill. Indicators that would measure the success of the reforms are nutrient use efficiency, soil organic carbon, groundwater quality, yield, and farmers’ income.

A Gradual Transition, Not a Cost-Cutting Exercise

India’s fertiliser subsidy system needs reform, but the objective should be to improve agricultural resilience rather than simply reduce public expenditure.

A practical approach would need to start with better information, clear prices, and pilot transfer schemes in appropriate regions. Independent assessment should be done on how the scheme ensures access of the farmers to necessary nutrients, improves the quality of soil and keeps farmers financially secure.

Based on successful piloting, a gradual scaling up could follow, along with protections in place for tenant farmers, marginalized areas and times of volatility of international prices.

But the key question is not whether India should help its farmers. The key question is whether such help enables Indian farmers to produce today’s food without undermining fertility of tomorrow’s fields.

The combination of DBT scheme, soil management based on science and reliable inputs is one possible way forward. No subsidies should encourage over-consumption and saving for short-term but damaging the soil.