Lucknow: India's fertiliser subsidy system is imposing a much higher cost on the economy than the direct financial benefits it provides to farmers, with hidden environmental and fiscal costs pushing the overall burden up by 36 to 182 per cent, according to a new study by Climate Trends.
The study, titled The Economics of Cultivation, argues that India's fertiliser pricing policy, which keeps nitrogen-based urea artificially cheap, has encouraged excessive dependence on chemical fertilisers, contributing to soil degradation, groundwater contamination, greenhouse gas emissions and rising government expenditure.
Examining fertiliser-intensive wheat and paddy cultivation across eight states, the study found that in every wheat-growing case analysed, the total return to society was 36 to 182 per cent lower than the direct financial benefit to farmers. In two of the five cases, the overall social return turned negative after accounting for environmental and fiscal costs.
Cheap Urea Drives Excessive Fertiliser Use
The report attributed the imbalance largely to the fixed price of urea, which encourages farmers to use more nitrogen than required.
The declining efficiency of fertiliser use highlights the problem. According to the study, grain production per kg of fertiliser applied fell from 13.4 kg in 1970 to 2.7 kg in 2015. Soil testing data showed that 97 per cent of soil samples across the country were deficient in nitrogen and 85 per cent in organic carbon, despite excessive nitrogen application.
The study also flagged groundwater contamination, with nitrate levels exceeding the Bureau of Indian Standards' drinking water limit reported in Punjab, Haryana, Rajasthan, Uttar Pradesh and Tamil Nadu.
"Excessive dependence on chemical fertilisers comes at a far greater cost to the nation than what is reflected in their market prices or subsidy allocations," said Dr Palak Balyan, lead author and Research Lead at Climate Trends.
Global Price Shocks Increase Fiscal Burden
The report highlighted India's vulnerability to international energy and fertiliser price shocks, particularly disruptions around the Strait of Hormuz. It said urea prices rose 53.7 per cent in a month to around $726 per tonne in February 2026, a four-year high.
Fertiliser production was affected by restrictions on gas supplies, with plants operating at 60 to 70 per cent of their normal capacity. Domestic urea production fell by 0.8 million tonnes in March alone.
India avoided a shortage by drawing down stocks and adding 6.9 million tonnes of domestic urea and 1.8 million tonnes of imports within three months, adding to the government's financial burden, the report said.
Climate Trends Founder-Director Aarti Khosla said recent geopolitical tensions had exposed India's vulnerability to global energy shocks, making it necessary to rationalise fertiliser consumption and gradually shift towards bio-based inputs and organic farming.
Organic Farming Offers Potential Profitability Gains
The study, however, cautioned against an abrupt withdrawal of chemical fertilisers, arguing that organic farming could improve farmers' profitability if the transition was properly supported.
Citing international evidence, it said organic production could be 22 to 35 per cent more profitable after accounting for price premiums, even with a 10 to 18 per cent decline in yields. A premium of just 5 to 7 per cent was found sufficient to break even.
An experiment conducted by ICAR's Indian Institute of Farming Systems Research at Modipuram found that plots using 50 to 75 per cent organic substitution achieved yields comparable to fully organic plots and performed better than fully chemical-based plots. These plots also generated an additional profit of Rs 53,200 per hectare compared with chemical farming.
Transition Challenges And Policy Lessons
The report said the transition period remained a major challenge as farmers incurred additional costs immediately, while the benefits of organic certification and market premiums generally took two to three years to materialise.
It cited Andhra Pradesh's natural farming programme as an example of improved profitability at comparable yields, while pointing to Sikkim's experience and Sri Lanka's abrupt 2021 fertiliser ban to underline the risks of poorly planned transitions.
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Study Recommends Restructuring Fertiliser Subsidies
Among its recommendations, the study called for restructuring urea subsidies on a nutrient basis rather than per bag, linking Soil Health Card recommendations with subsidy benefits and placing fertiliser pricing and soil health management under a single agency.
It also suggested redirecting a portion of fertiliser subsidies towards financial assistance for farmers adopting low-input cultivation practices.
According to the report, transitioning one million hectares to low-input rice cultivation could generate annual savings of Rs 1,155 crore, based on an estimated cost of Rs 11,554 per hectare for transplanted rice.
The study concluded that reducing dependence on chemical fertilisers would require a phased approach backed by farmer training, access to alternative inputs and assured market linkages rather than an abrupt policy shift.
