One reform can yield multiple benefits: India should send its fertilizer subsidy directly to farmers

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. Nitrogen-based urea absorbed over 65% of it, while phosphatic and potassic fertilizers claimed the rest under the nutrient-based 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. The urgency of reform was highlighted in the 2015-16 Economic Survey, which revealed that up to 65% of subsidized urea never reached small and marginal farmers.

Specifically, 41% was diverted for industrial use or cross-border smuggling. PoS checks introduced in 2016 did reduce diversion, as seen in declining urea sales, but the core problem persists. According to the Indian Council of Agricultural Research, the ‘fertilizer response ratio’ dropped from about 13.4kg of grain per kg of nutrient in the 1970s to just 3.7kg by 2005, a sharp decline in efficiency.

This is largely driven by rampant overuse of cheap urea. Skewed fertilizer use does not just degrade soil, it also seeps into our food and water, harming public health. Excess