As the world’s second-largest fertiliser consumer and with agriculture employing about 45% of the workforce, fertiliser self-reliance remains a strategic national priority. Government policy has therefore focused on ensuring affordable and timely availability through subsidies, alongside expanding domestic manufacturing capacity. As India approaches the Union Budget 2026–27, the fertiliser sector merits focused policy attention to strengthen soil health, ensure long-term agricultural sustainability, and advance Atma Nirbhar Bharat objectives.
Ensuring subsidy adequacy
In developed economies such as the US, EU and Japan, agriculture policy has shifted away from production-linked subsidies toward income support, risk management, crop insurance, environmental services and climate resilience.
In contrast, farm subsidies in India are primarily designed to ensure food security, support farmer incomes, and maintain the affordability of key agricultural inputs. Fertiliser subsidy remains one of the most critical elements, shielding farmers from global price volatility and ensuring timely access to nutrients at affordable prices.
Under India’s fertiliser subsidy framework, Urea is governed by a cost-plus regime, phosphatic and potassic (P&K) fertilisers fall under the Nutrient Based Subsidy (NBS) mechanism. But of the nearly ₹2 lakh crore spent annually on fertiliser subsidies, close to 70% is absorbed by urea, with the remainder supporting phosphatic fertilisers.
There is a reasonable case for revisiting the subsidy framework by gradually bringing urea under the NBS regime, while protecting marginal farmers through targeted direct subsidy support.
The recent surge in prices of key inputs such as sulphur and ammonia has strained Phosphatic industry viability, as NBS rates have not kept pace with global trends especially for N and K nutrients. The forthcoming Budget should therefore provide adequate, price-aligned fertiliser subsidy allocations under NBS to ensure uninterrupted nutrient supplies ahead of the cropping season.
To promote balanced nutrition, there is a need to encourage innovations such as nano and slow-release fertilisers, along with organic and bio-fertilisers. Inclusion of such resource efficient solutions under schemes like PM-PRANAM, which incentivise States to adopt integrated nutrient management by reinvesting subsidy savings in alternative fertilisers, farmer training and awareness, can play a pivotal role. Higher allocations under PM-PRANAM will, therefore, be critical to accelerating this transition.
Achieving Atma Nirbharta
Driven by policy reforms such as NIP-2012 and NUP-2015, nearly 8 million tonnes of new urea capacity have been added over the past decade, significantly reducing import dependence while improving energy efficiency and enabling a shift toward cleaner fuels. In contrast, capacity additions in the phosphatic segment have remained limited, with nearly 30% of domestic demand still met through imports. The forthcoming Budget can address these constraints by extending time bound capital grants, accelerated depreciation and tax concessions for greenfield capacities, thereby encouraging domestic investments and reducing import reliance.
A major constraint in expanding phosphatic fertiliser capacity is the accumulation of phospho-gypsum from phosphoric acid production (an intermediate for Fertiliser manufacturing), while imports of mineral and chemical gypsum continue due to preferential GST treatment for products derived from it.
The Union Budget can correct this anomaly by bringing GST on downstream products from domestic gypsum at par with imported products (reducing it from 18% to 5%), increasing the Basic Customs Duty on mineral gypsum, and banning chemical gypsum imports.
Tax and GST Reforms
There is a need to rationalise taxes, customs duties and GST provisions affecting the fertiliser sector, and the Union Budget 2026-27 provides an important opportunity to address these concerns.
On the customs front, exemption or reduction of Basic Customs Duty on key raw materials such as ammonia, phosphoric acid, sulphuric acid, rock phosphate and sulphur would help enhance the competitiveness of domestic manufacturing. Rationalisation of duty structures, exemption of critical inputs from the Agriculture Infrastructure and Development Cess, relief on duties applicable to micronutrients, and procedural clarifications are also required to avoid unintended cash flow pressures and interest burdens.
On the GST side, the decision to reduce GST rates from 18% to 5% on ammonia, sulphuric acid and nitric acid - bringing them at par with fertilisers - and the reduction of GST on micronutrients from 12% to 5% are positive steps. However, issues related to the inverted duty structure continue to result in the accumulation of unutilised input tax credit.
Addressing this will require explicit clarification to allow GST refunds due to inversion of value on account of subsidy, restoration of exemptions on transportation services, facilitation of input tax credit utilisation in specific cases, and simplification of compliance requirements, including removal of duplication between the e-invoice and e-way bill systems.
Several measures on direct taxes like restoring weighted deductions for R&D and farmer education, allowing accelerated depreciation for energy-saving devices - and easing compliance and litigation burdens can go a long way in strengthening the fertiliser sector.
S Sankarasubramanian, Chairman, Fertiliser Association of India (FAI) and Managing Director and CEO of Coromandel International Limited