India should transfer its subsidy for fertilizers directly to farmers

This reform will free up fiscal space, empower price signals and spell significant ecological gains

- AMIT KAPOOR & PRADEEP PURI

India's fertilizer subsidy has long weighed heavily on the exchequer.

The revised budget allocation for it in 2024-25 stood at ₹1.83 trillion. Nitrogenbased urea absorbed over 65% of it, while phosphatic and potassic fertilizers claimed the rest under the nutrientbased subsidy (NBS) regime. The 2025-26 budget allocation is ₹1.56 trillion. This subsidy is among our largest recurring fiscal commitments and its structure matters as much as its cost.

The current fertilizer subsidy model, introduced in 2017-18, claims to be a direct benefit transfer (DBT), yet it does not reach farmers directly or entirely. The funds are transferred to fertilizer firms, not cultivators. Fertilizer makers are reimbursed only after Aadhaar-authenticated sales at point-of-sale (PoS) terminals. This model has improved traceability and curbed fertilizer diversion to some extent, but not tackled the problem of artificially low retail prices that fuel fertilizer overuse, damage soil health and leave scope for misuse.