Mounting Fertiliser Subsidy in India

Fertiliser subsidy is again coming into the limelight after the finance minister’s demand for a supplementary grant of a sum of `1.09 lakh crore for the same in the 2022–23 budget. This is in addition to the budget estimate of `1.05 lakh crore in the current fiscal, which makes the total fertiliser subsidy more than `2.10 lakh crore. This letter presents the reasons for such a hike in the same.

First, is the global fertiliser crisis and India’s high dependence on fertiliser import. According to the World Bank, the fertiliser price index has risen around 15% in 2022 from earlier, and the prices have more than tripled compared to two years ago. The reasons for such a crisis are six—increased global demand, rise in the cost of inputs for fertilisers, shortage of supply in the international market, domestic policies, geopolitical risk, and the Russia–Ukraine war. Key crop-growing regions have a strong demand for chemical fertiliser products and have acted as a driving force on the price hike. Crops like corn and soybeans had a greater need for potash and phosphatic fertilisers at the global level due to increased crop acreage. Second, higher costs of inputs for the production of various fertiliser products have also bolstered the prices. In the case of phosphatic fertilisers, raw materials like sulphur and ammonia have faced a sharp increase in prices due to the COVID-19 restrictions. On the contrary, in the case of urea, the feedstock costs hit a record high in 2021.