Proposal for a Planned Exit from the Urea Subsidy
Introduction
India’s fertiliser subsidy system, especially for urea, has ensured affordable access for farmers for decades. However, this subsidy now poses structural, fiscal, and environmental challenges. Urea remains disproportionately cheap compared to other fertilisers, encouraging overuse and soil nutrient imbalance. A gradual, well-structured exit from the subsidy is essential to ensure fiscal prudence, environmental sustainability, and agricultural productivity, without hurting farmers’ income or food security.
Background
India consumes about 35 million tonnes of urea annually, with more than 70% under price control. The current subsidy regime distorts the fertiliser market, discourages balanced nutrient use, and drains public finances. Moreover, excessive urea use leads to soil degradation and environmental stress, while the subsidy discourages innovation and efficiency in fertiliser production.
The government has made progress in direct benefit transfer (DBT) for fertiliser payments and promoting alternative nutrients like nano-urea, but the system remains heavily dependent on large-scale subsidy disbursements. A planned withdrawal over several years—combined with technology, logistics, and communication reforms—can enable a smooth transition.
Rationale for Exit
The key reasons for a planned exit include:
– Rationalising public expenditure and freeing fiscal space for infrastructure, irrigation, and rural livelihoods.
– Encouraging farmers to use balanced fertiliser combinations, improving soil health and long-term productivity.
– Enhancing transparency and reducing leakages through efficient delivery systems.
– Aligning fertiliser pricing with actual production and transportation costs.
– Promoting innovation, efficiency, and private participation in fertiliser production and distribution.
Proposed Framework for a Gradual Exit
The exit must be phased, ensuring minimal disruption and clear communication. The following framework combines administrative, financial, and technological measures for an orderly transition.
Stage One – Foundation for Reform
A baseline year should be established to identify regional fertiliser usage, soil health status, and crop requirements. The first step would be to strengthen data collection through soil health cards and integrate fertiliser distribution with digital systems. India Post, Indian Railways, and the Common Service Centre (CSC) network can form the backbone of this logistics and monitoring system.
Existing DBT mechanisms should be redesigned so that farmers receive targeted support directly in their accounts, instead of the subsidy going to fertiliser companies. This allows gradual correction of urea prices without immediately burdening farmers.
Communication will play a vital role. The Ministry of Chemicals and Fertilisers, along with the Ministry of Agriculture and Department of Posts, should jointly handle information campaigns to explain the rationale, benefits, and stages of change. Messaging should be farmer-friendly, multilingual, and supported by extension officers and Krishi Vigyan Kendras.
Stage Two – Controlled Price Correction and Nutrient Balancing
Once DBT to farmers is in place, urea prices can be increased modestly in a predictable manner—perhaps 5–10% annually. Simultaneously, farmers should receive a compensatory cash transfer for two to three years, gradually tapered off as the market stabilises.
At this stage, promotion of balanced fertiliser use becomes essential. Excessive urea usage can be corrected through incentives for complex fertilisers (NPK) and organic alternatives. Public campaigns can highlight that balanced nutrients improve yields, reduce input costs, and enhance soil fertility.
This phase must also encourage increased production and distribution of nano-urea and other efficient formulations. These are lighter, easier to transport, and reduce nitrogen losses. Scaling up nano-urea production and its integration into the distribution system through Railways and India Post will improve access across regions.
Stage Three – Liberalisation and Market Reform
As subsidies taper down, the fertiliser market can be gradually liberalised. Domestic manufacturers and importers should compete under transparent pricing. Government oversight will remain for quality control, safety, and environmental standards.
Railways can play a crucial role in ensuring efficient bulk movement of fertilisers, using a hub-and-spoke model where central warehouses supply district-level depots. India Post can handle last-mile logistics, ensuring supply even in remote areas, while also tracking sales and usage through digital receipts.
To prevent sudden price shocks, buffer stocks and regional reserves can be maintained. Farmers’ cooperatives and state agencies can handle temporary procurement if prices spike abnormally. This ensures food security and confidence during the transition.
Institutional and Administrative Measures
A Urea Transition Coordination Committee should be set up with representatives from key ministries—Chemicals and Fertilisers, Agriculture, Finance, Railways, and Communications. It will coordinate implementation, track impact, and ensure corrective action.
The use of technology—GPS mapping, online fertiliser tracking, and e-market platforms—should be expanded to ensure transparency. Integration with the Aadhaar will allow direct monitoring of subsidy transfers and farmer reach.
District-level agricultural officers should work with post offices and Panchayats to identify farmers, verify land holdings, and ensure correct cash transfers. Special outreach efforts should be made in areas heavily dependent on urea-based farming, such as paddy and sugarcane belts.
Safeguards for Farmers
Farmer incomes must remain protected. The transition should ensure that total production costs do not rise sharply. Compensation transfers during the initial years will prevent shocks. Additional support through MSP adjustments, crop insurance, and targeted irrigation subsidies can offset input cost increases.
Encouraging adoption of bio-fertilisers, composting, and integrated nutrient management will reduce dependency on chemical fertilisers. These initiatives can be supported under existing government schemes, ensuring continuity of farm productivity.
Small and marginal farmers should be given priority in cash transfers and technical training. Farmer Producer Organisations (FPOs) and cooperatives can act as intermediaries, helping farmers understand nutrient balancing and efficient input use.
Financial and Economic Benefits
A phased exit can save the government over ₹1 lakh crore annually in the long run. These savings can be redirected to rural infrastructure, agricultural R&D, and soil rejuvenation programs. Reducing urea overuse will also cut import dependency, conserve foreign exchange, and improve environmental sustainability.
Moreover, transparent fertiliser pricing will attract private investment and competition, improving efficiency and reducing administrative burdens on the government.
Use of Public Systems for Delivery
The Indian Railways can act as the main carrier for bulk fertiliser movement, ensuring timely supply to regional depots. Railways’ data systems can track shipments, costs, and leakages.
India Post, with its vast rural reach, can deliver fertilisers to small farmers and act as an information and distribution hub. Its digital infrastructure allows real-time updates, grievance redressal, and delivery authentication.
This collaboration between Railways and India Post will modernise fertiliser logistics, strengthen public institutions, and build transparency in the entire supply chain.
Communication and Farmer Outreach
The success of this plan depends on how well it is communicated. Farmers must feel part of the process, not victims of reform. Messaging should highlight how direct transfers empower them to make independent choices. Radio, television, and local campaigns through Panchayats should explain how soil health, balanced fertilisation, and direct benefit transfer will strengthen agriculture.
Training sessions and demonstration farms can help farmers witness the benefits of reduced urea dependency. Agricultural universities and Krishi Vigyan Kendras can lead these initiatives.
Environmental and Soil Health Impact
India’s heavy urea usage has caused nitrogen imbalance, declining soil organic content, and water contamination. A controlled reduction, combined with bio-fertilisers and composting, will restore soil structure and reduce pollution.
Promotion of integrated nutrient management—combining organic and chemical sources—will ensure sustainable yields. These environmental benefits, combined with fiscal savings, make the reform both economically and ecologically essential.
Conclusion
India’s fertiliser subsidy system has served its historical purpose but now needs restructuring. A planned, phased exit from urea subsidy—supported by direct transfers, logistics reform, and farmer outreach—will create a more balanced, efficient, and sustainable agricultural economy.
The proposed transition is not an abrupt withdrawal but a gradual reallocation of resources. Farmers remain central to this reform; their incomes and productivity must be safeguarded. By using India’s strong public networks—the Railways, Postal Service, and Digital India infrastructure—the transition can be executed smoothly.
This initiative can become a model for rational, transparent reform in India’s subsidy architecture—combining fiscal responsibility, environmental care, and farmers’ empowerment.
