India’s fertilizer subsidy bill is poised to climb in the current and upcoming fiscal years as tensions in the Gulf region threaten to drive up natural gas prices and freight costs, industry officials and analysts warn. Currently, the government projects the subsidy at ₹1.71 trillion for the next financial year, slightly below the revised estimate of ₹1.86 trillion for 2025-26, but unexpected developments in global energy markets could push the allocation higher.
The fertilizer subsidy is a critical tool for stabilizing farm input costs, particularly for urea, which constitutes the most widely consumed nitrogenous fertilizer in India. Natural gas, the primary feedstock for urea production, accounts for roughly 75–80 percent of production costs, making the sector highly sensitive to fluctuations in energy prices. Pushan Sharma, director of Crisil Intelligence, noted that tensions in the Middle East could increase contracted LNG prices by 15–20 percent, leading to higher production costs and a corresponding rise in subsidy expenditure by over 10 percent.
Shipping disruptions through the Strait of Hormuz, a key route handling nearly one-fifth of global crude flows, have heightened concerns. While no formal closure has occurred, uncertainty has already led carriers to alter schedules and pause sailings. Analysts warn that indirect impacts—including rising freight and insurance costs—may further inflate input prices for fertilizers, many of which transit through the strategic waterway. Historical precedents, such as the 2023 spike in crude and raw material prices, suggest that prolonged instability could push the subsidy bill even higher, as the government steps in to keep farm-gate prices under control.
India, the world’s second-largest producer of nitrogenous fertilizers after China, generated about 30.6 million tonnes of urea in FY25. Imports have also risen sharply, with domestic urea production at 22.44 million tonnes during April–December 2025 and imports climbing 85.3 percent to 8 million tonnes. Phosphatic and potash fertilizers show similar trends, with imported quantities helping maintain nutrient availability despite modest declines in domestic output.
S. Sankarasubramanian, chairman of the Fertilizer Association of India and CEO of Coromandel International Ltd, emphasized that while India relies on West Asia for certain raw materials, domestic fertilizer stocks are currently adequate. He added that diversified sourcing arrangements and alternative shipping routes provide a reasonable cushion against short-term supply disruptions. He also noted that the off-season ahead of the Kharif sowing period is likely to keep immediate demand moderate.
Despite these buffers, experts caution that any sustained increase in Brent crude prices will raise imported natural gas costs, which are directly linked to crude pricing. This, in turn, could increase production costs for urea and other fertilizers, amplifying the government’s subsidy burden. Past experience in fiscal 2023 demonstrates how surges in phosphoric acid and ammonia prices forced record subsidy allocations, reaching approximately ₹2.5 trillion.
With geopolitical uncertainty and volatile energy markets combining to pressure input costs, India’s fertilizer sector faces a delicate balancing act: ensuring steady supplies and affordable prices for farmers while managing the fiscal impact of subsidies. Government agencies and industry bodies are closely monitoring developments, prepared to intervene as needed to safeguard agricultural production and maintain the stability of India’s farm economy.
