The price of urea in India has remained unchanged at ₹5.4 per kilogram for over 25 years despite rising inflation and production costs. This has led to excessive use of urea by farmers, causing soil health issues and a rising fiscal burden on the government due to subsidies. Efforts by the government to increase domestic production have helped reduce dependence on imports but have not curbed demand. The need for pricing reforms and balanced fertiliser use has become a critical concern.
Historical Pricing and Subsidy Context
Urea prices have been fixed at ₹245 per 45-kg bag since the 1990s. Attempts to raise prices faced strong opposition and were withdrawn. The government subsidises urea heavily to keep it affordable for farmers. This subsidy constitutes about 66-70% of the total fertiliser subsidy bill, costing the exchequer ₹1.25 to ₹1.68 lakh crore annually in recent years. Rising costs of feedstock and a depreciating rupee have inflated subsidy expenses.
Domestic Production and Import Trends
India has increased domestic urea production by 25% in the last decade, from 24.5 million tonnes in FY16 to 30.6 million tonnes in FY25. Despite this, demand outstrips supply, requiring imports of 5.6 million tonnes in FY25. The government’s push for atmanirbharta (self-reliance) in fertilisers has improved capacity but not eliminated import dependence.
Imbalance in Fertiliser Use and Soil Health
The low price of urea compared to other fertilisers has skewed the NPK (Nitrogen, Phosphorus, Potassium) ratio to 11.6:4.6:1, far from the ideal 4:2:1. Overuse of urea, especially in paddy-growing states like Tamil Nadu, Telangana, Punjab, Haryana, and Andhra Pradesh, has caused soil degradation and nutrient deficiencies. Poor application methods result in about two-thirds of urea leaching into soil and groundwater, posing environmental and health risks.
Need for Pricing Reforms and Balanced Fertiliser Use
Raising urea prices gradually by about 5% annually could discourage excessive use. This would help balance the use of complex and speciality fertilisers, which currently remain costly. A higher subsidy on these fertilisers alongside a phased urea price increase could promote balanced nutrient application. Price reforms would also reduce the subsidy burden on the government and curb illegal diversion of urea for non-agricultural uses.
Policy and Political Considerations
The current government has the political capital to implement urea price reforms, similar to reforms in other sectors like GST. Sensitising farmers and stakeholders about the benefits of balanced fertiliser use is vital. Phased price increases must be paired with enhanced subsidies for speciality fertilisers to maintain affordability and encourage sustainable farming practices.
Questions for UPSC:
- Critically discuss the impact of fertiliser subsidies on agricultural sustainability and government finances in India.
- Examine the causes and consequences of nutrient imbalance in Indian agriculture and suggest measures to address it.
- Analyse the role of domestic production and imports in India’s fertiliser sector. How does this affect agricultural self-reliance?
- Estimate the environmental and health impacts of excessive urea use and discuss policy options to mitigate these effects.
