Of all the sectors of the Indian economy affected by the Gulf war, agriculture, which employs more than two-fifths of the population, is the most vulnerable, as it also underpins exports and other industries. The sector has shown resilience to grow by 3-5 percent in recent years while its share of the GDP declined to 18 percent. Yet its contribution to the nation’s gross value added output increased from 24.38 percent in 2015 to 30.23 percent in 2023. So, when agriculture has a bad year, GDP growth falters. That is why the exacerbated uncertainty the sector currently faces deserves a closer scrutiny.
The biggest impact of the West Asian conflict on India’s primary sector involves shortages of compressed natural gas, LPG, petrol and diesel. This has led to inflation and hardships, especially for low- and middle-income families. Within these groups, farmers are the hardest hit because the cost of their production has risen even as the efficiency of their output is in question. The muted overall inflationary impact of it all probably highlights the outdated methods used to calculate inflation, rather than the ground reality.
It’s now clear fuel and fertiliser shortages will directly hinder agricultural growth, which has stayed around 4 percent—significantly below the 9 percent target needed to double farmers’ incomes. Since the start of the year, the cost of diesel used in tractors, irrigation and machinery has risen. The crude crisis has also disrupted fertiliser production, causing shortages of urea and anhydrous ammonia. Prices have jumped and some regions are reporting shortages.
While the transport sector that carries agricultural produce accounts for around 70 percent of India’s annual fuel demand, agriculture accounts for about 15 percent. Oil is also crucial for the 33 urea plants in the country that produce approximately 269 lakh metric tonnes a year, an output supplemented by imports of about 70 LMT. For potash, India relies on imports of around 80 LMT annually from Canada, Belarus and Russia.
For domestic urea production, which accounts for about 29 percent of the total, India mainly relies on natural gas. More than half of this gas is imported, mainly from Qatar, the UAE and Oman. Reliance on imports is even higher for other fertilisers such as diammonium phosphate (DAP), muriate of potash (MOP) and other complex fertilisers due to limited domestic reserves of raw materials. Additionally, India imports merchant ammonia for DAP and complex fertilisers from Oman, Saudi Arabia and Qatar. Rather than depending on only a few suppliers, we should have diversified supplies to reduce the risk from disruption. This highlights India’s fragile dependence on other countries—a list that also includes the US, Russia, Saudi Arabia and Iraq—for agriculture.
Diesel and petrol shortages now threaten to affect the kharif output, particularly of food grains, fruits and vegetables. At the same time, our agricultural exports remain vital for farming communities, particularly in fresh produce, flowers and processed foods. The measures needed to protect that segment include ensuring stability in the forex rates in the short term and exploring new export markets.
India exported $747 million of rice and $51 million of tea to Iran in 2025. Understandably, exports there are now delayed or cancelled. Basmati rice exports decreased by 7 percent in early 2026 as Gulf buyers hesitated to enter new deals due to the rising shipping insurance and freight costs. Other impacted commodities include wheat, turmeric, cumin, sugar, groundnut and chickpeas. All of this will lead to reduced farmer incomes. In turn, falling rural incomes may weaken demand for consumer goods, causing rippling effects throughout the economy.
There are several policy change suggestions that need urgent attention. Both the state and Union governments should lower fuel taxes further and shift revenues to other sources such as road tax. Broadening the import base for oil and fertilisers can mitigate the risks associated with reliance on fewer than 10 suppliers. Fostering competition among suppliers will help, especially given India’s large demand.
The input diversification options include importing LNG from the US, Australia, Angola and Cameroon, as well as ammonia from Indonesia, Malaysia and China. Though government reforms have driven total domestic fertiliser production from 385.39 LMT in 2014-15 to 503.35 LMT in 2023-24, substantial improvement is still needed. Urea production units are currently operating at only 60 percent capacity on average, a rate that must be increased.
In fertilisers, it is crucial to base import planning on more precise demand forecasting to ensure effective distribution. We should move away from the ineffective cover-all subsidy scheme and shift towards direct benefit transfers to farmers’ bank accounts, along with the popular PM Kisan Samman Nidhi scheme. India, the second-largest consumer of fertilisers, should focus on increasing DAP and MOP production, as their dependency is especially high.
Subsidised fertilisers should be supplied in fixed, landholding-based quantities. Urea should be integrated into the nutrient-based subsidy scheme without rate differentials to prevent overuse of any single fertiliser. Investing globally in fertiliser companies can facilitate purchase agreements. It is vital to allocate funds for building relationships with fertiliser producers in select countries and to secure long-term supply contracts.
Even beyond this, several critical constraints need policy interventions. Climate change and unpredictable weather threaten vulnerable regions, emphasising the need for effective mapping and planning. Although India receives sufficient rainfall for agriculture in most years, its uneven distribution and variability pose challenges. Water-scarce areas need targeted assistance. The Indian Council of Agricultural Research and the National Rainfed Area Authority have identified regions requiring support to help farmers maintain their livelihoods.
Income fluctuations often lead farmers into debt traps and financial hardships, prompting many to seek non-agricultural jobs in cities, thus underlining the importance of rural-urban migration. Limited market infrastructure further restricts farmers’ earning potential. Even if the Gulf crisis is resolved smoothly, vigilance is essential. We can see this year as a rare opportunity to reassess our agricultural policies amid a raging crisis.
R S Deshpande | Former Director of the Institute for Social and Economic Change and Dr B R Ambedkar School of Economics, Bengaluru
Khalil Shaha | Assistant Professor, Institute for Social and Economic Change, Bengaluru
(Views are personal)
