New Delhi is considering a significant increase in its fertiliser subsidy allocation for the upcoming Financial Year 2028 Union Budget. Early discussions suggest a contingency buffer of up to 20% higher funding to mitigate the impact of unpredictable global fertiliser and fuel prices.
Government sources indicate that the current financial year's fertiliser subsidy bill is already expected to surpass Rs 3 lakh crore, substantially exceeding the initial budgeted allocation of Rs 1.70 lakh crore. Over 65% of the current allocation has reportedly been utilized, prompting the Department of Fertiliser to request a 100% increase for the current fiscal year as a revised estimate.
Global Disruptions Drive Up Costs
The surge in projected expenditure is attributed to several external factors, including supply chain disruptions, the ongoing West Asia conflict, and the El Niño weather phenomenon, all of which have driven up international prices. Finance Minister Nirmala Sitharaman has highlighted the critical nature of international fertiliser supplies for India's food security, noting that the country imports nearly 80% of its fertiliser requirements.
Speaking at the Munich Security Conference, Sitharaman emphasized that the government cannot pass on elevated international prices to Indian farmers, many of whom operate small landholdings. She illustrated the scale of government support, explaining that a fertiliser unit imported at approximately Rs 3,000 is provided to farmers for around Rs 300, with the government bearing the remaining Rs 2,700.
Rising Input Prices Strain Budget
The pressure on the subsidy budget reflects a sharp increase in essential input costs. Government assessments presented at the annual rabi conference revealed that the subsidy burden on a 45-kg bag of urea escalated to Rs 2,775 from Rs 1,350 before the conflict. Similarly, the burden on a 50-kg bag of diammonium phosphate (DAP) increased from Rs 2,102 to Rs 3,523.
International prices for key raw materials have also seen dramatic hikes. Imported DAP prices surged to $940 per tonne from $681, while sulphur prices doubled from $532 to $1,050 per tonne, impacting the production of phosphatic fertilisers. The domestic production of complex fertilisers also saw a 26% decline post-conflict compared to the previous year.
While urea import prices have shown some easing from their peak in May, the sustained high prices of DAP, muriate of potash, and sulphur continue to pose significant risks to the overall subsidy bill, necessitating the proposed budgetary adjustments for FY28.