NEW DELHI — The Ministry of Agriculture and Farmers Welfare has projected that the fertilizer subsidy for the 2026‑27 fiscal year could surpass ₹3 lakh crore, a sharp increase from the ₹2.4 lakh crore allocated for the previous year. The hike is part of a broader effort to support farmers amid a forecast of reduced rabi crop output due to an El Nino event, according to a report by The Hindu Business Line.
Subsidy surge amid climate uncertainty
The government’s subsidy framework, which covers 90 per cent of the cost of urea, DAP, and other key fertilizers, is expected to rise by 25 per cent compared to FY 2025‑26. The increase is driven by higher procurement prices and a policy shift that aims to keep the subsidy rate at 80 per cent of the market price, a change announced in the 2026 budget speech.
In the 2025‑26 fiscal year, the subsidy stood at ₹2.4 lakh crore, a figure that already strained the agriculture and food processing budget. The new projection, released in a press briefing on 28 September, indicates that the Ministry will procure an additional 12 million tonnes of urea and 4 million tonnes of DAP to meet the higher subsidy level.
Finance Minister Nirmala Sitharaman noted in the budget that the subsidy is a “necessary investment in the agricultural sector” and that the fiscal deficit will be managed through a combination of higher tax receipts and targeted spending cuts. The ministry’s spokesperson added that the subsidy will be financed through a mix of domestic borrowing and reallocation of funds from other sectors.
El Nino, which is expected to bring drier conditions to the Indo‑Gangetic plains, could reduce rabi crop yields by up to 15 per cent, according to the Agriculture Secretary’s warning published in The Economic Times. The Secretary highlighted that lower rainfall would affect wheat and barley production, potentially leading to a 5 per cent decline in national foodgrain output.
In response, the Ministry has announced a contingency plan that includes additional subsidies for irrigation and the provision of drought‑resistant seed varieties. The plan also calls for a temporary increase in the price support for wheat to cushion farmers against market volatility.
Analysts point out that the subsidy hike comes at a time when the government is under pressure to reduce the fiscal deficit, which is projected to reach 6.5 per cent of GDP for FY 2026‑27. The central bank’s recent policy statement indicates that the Reserve Bank of India will maintain a cautious stance on liquidity to avoid inflationary pressures.
The Ministry of Finance has requested the Ministry of Agriculture to submit a detailed cost‑benefit analysis by 15 October, to justify the additional outlay. The analysis will examine the impact on the national budget, the potential for increased agricultural productivity, and the long‑term sustainability of the subsidy scheme.
Farmers’ associations have expressed mixed reactions. While some groups welcome the higher subsidy as a relief measure, others argue that it may not translate into lower input costs due to supply chain bottlenecks. The National Farmers Union (NFU) has called for a review of the procurement process to ensure timely delivery of fertilizers.
In the broader context, the subsidy increase aligns with the government’s commitment to the National Food Security Mission, which aims to raise foodgrain production to 1.5 billion tonnes by 2030. The mission’s latest report, released in August, noted that fertilizer usage has been a key driver of yield gains in the past decade.
Internationally, the World Bank’s latest agricultural outlook for South Asia predicts a modest growth in fertilizer demand, driven by expanding arable land and the adoption of high‑yield crop varieties. The Bank’s report suggests that India’s subsidy policy could influence global fertilizer prices, especially in the downstream market.
As the fiscal year approaches, stakeholders will closely monitor the Ministry’s implementation strategy and the actual expenditure on subsidies. The government has pledged transparency by publishing monthly expenditure reports on its official portal.
