In-year fiscal data shows subsidy pressures threatening the fiscal glide path. Examine the structural drivers of India's fertiliser subsidy bill and suggest reforms.

By end-August 2026 the Centre's fiscal deficit had reached 41.9% of the 2026-27 Budget Estimate, compared with 38.1% a year earlier. Higher fertiliser subsidy spending was the main reason [1]. The 2026-27 target is 4.3% of GDP [2], so a subsidy overrun leaves little room. The bill keeps rising because of how the subsidy is designed, not because of one bad year.

Structural drivers

• No upper limit on urea support: Farmers pay a fixed price (MRP) for urea and the government pays the rest of the cost. So any rise in gas or import prices falls fully on the Budget.
• Import dependence: About 89% of potassic and 28% of phosphatic needs are met through imports [3]. Global price swings and supply shocks, such as unrest in West Asia, feed straight into the subsidy bill.
• Distorted nutrient use: Urea is cheap compared with P&K fertilisers, so farmers use too much of it. This raises volumes, damages soil health and makes each rupee of subsidy less effective.
• Leakage: Subsidised urea is diverted to industry and smuggled across borders, which pushes up demand.
• Budgeting too low and deferring dues: When the Budget provides less than the real cost, unpaid bills pile up. The CAG found ₹1.2 lakh crore of fertiliser and food subsidy dues carried forward at the end of 2016-17 [4].

Reforms

• Pricing: Gradually bring urea under the Nutrient Based Subsidy model, with a fixed subsidy per kg of nutrient. This limits how much price shocks can hurt the Budget.
• Targeting: Extend DBT from retailer point-of-sale to farmers' accounts, link it to Soil Health Cards, and cap the quantity each farmer can buy at the subsidised rate.
• Supply security: Expand domestic capacity, including nano-fertilisers, and sign long-term supply deals and overseas joint ventures for potash and phosphate [3].
• Fiscal transparency: Budget the real subsidy cost in the Revised Estimates and disclose all carried-forward dues, as the CAG has urged [4].

Fertiliser subsidy pressure comes from open-ended pricing, import exposure and distorted incentives working together. A shift to nutrient-neutral, targeted and transparently budgeted support would protect farmers' welfare and SDG-2 (food security). It would also keep the Centre on course for its goal of bringing debt down to about 50% of GDP by 2031 [2].