FAI chairman S Sankarasubramanian on fertiliser demand, subsidies, global prices, and the path to balanced nutrition
Strong Monsoon, Acreage Growth, and Inventory Rebuild
The fertiliser sector has had a stable FY26 so far. Strong monsoon conditions and higher crop acreage supported demand.
- Consumption growth remained modest. Urea demand rose only around 2 per cent.
- Production was near peak utilisation. Phosphatic plants ran at 100 per cent, urea above 95 per cent.
- Inventory rebuilding drove imports. Lower opening stocks last year required replenishment before the rabi season.
This means import growth was largely about restoring stock levels, not a sudden surge in consumption.
Pricing Distortions and the NPK Imbalance
India’s NPK ratio remains skewed toward nitrogen, and pricing has played a key role.
- Urea prices are heavily subsidised, encouraging overuse.
- DAP prices have been capped, especially after Covid-related disruptions.
- The government absorbed global price shocks to protect farmers from volatility.
Earlier, after the Nutrient-Based Subsidy (NBS) regime, phosphatic subsidy fell from 65 per cent to nearly 30 per cent. Recent support to DAP has pushed it back up, raising sustainability concerns.
Price caps distort farmer choice. When DAP becomes relatively cheaper, farmers prefer it over lower-phosphatic NPKs, worsening nutrient imbalance.
Shift in Usage Patterns Across Regions
The fertiliser mix is already changing.
- Northern India traditionally relied more on DAP.
- Recently, NPK usage has risen sharply, even in the North.
- The NP/NPK-to-DAP ratio shifted from 50:50 to 65:35.
Farmers understand balanced nutrition. Restoring price parity can accelerate this shift.
Why Market-Linked DAP Pricing Makes Sense Now
The call is not for a sharp price hike, but for a market-oriented alignment.
- At peak global prices, DAP crossed $800 per tonne, which would have meant Rs 2,400–2,500 per bag domestically.
- Today, global prices are softening, driven by weaker commodity prices like corn.
- In market-based systems, fertiliser prices naturally adjust when farmers cannot afford high inputs.
This creates the right window to move toward market-linked DAP pricing with minimal farmer impact, while supporting balanced fertilisation.
Subsidy Support and Industry Viability
Recent government support has been crucial.
- A one-time advantage–disadvantage compensation helped offset high import costs.
- Without it, importers would have faced significant losses.
For FY26:
- Budgeted subsidy: ~Rs 1.68 trillion
- Likely outgo: closer to Rs 1.90 trillion, due to elevated DAP prices
Clarity will emerge closer to the Budget.
FY27 Outlook: Subsidy Burden May Ease
Looking ahead, subsidy requirements could moderate.
- DAP price softening typically pulls down phosphoric acid and rock phosphate prices.
- Ammonia and sulphur have seen temporary spikes due to supply disruptions.
- Normalisation is expected once Middle East production resumes.
Directionally, the sector must move toward a market-driven pricing framework, similar to NPKs.
Currency Risk and Import Economics
The rupee depreciation has directly impacted costs.
- Subsidy calculations hedge the exchange rate at announcement time.
- Subsequent depreciation is not fully covered.
- Importing at Rs 91/$ versus Rs 88/$ compresses margins.
This mismatch is partly corrected during six-monthly NBS revisions, but interim pressure remains.
Overseas Assets vs Domestic Value Capture
Buying assets abroad is not a silver bullet.
- Value capture happens where processing occurs.
- Overseas plants retain much of the economic benefit outside India.
- Transporting low-P blends internationally is often uneconomic.
A balanced strategy works best:
- Secure rock phosphate or mining concessions abroad (preferably via G2G routes).
- Build phosphoric acid and blending capacity in India.
- Customise fertiliser grades domestically for Indian soils and logistics.
Structural Reforms Needed for Phosphate Self-Reliance
The biggest bottleneck is phosphoric acid production.
- Acid plants generate gypsum by-products.
- India lacks efficient evacuation and utilisation systems for gypsum.
Key policy asks:
- Reduce GST on gypsum-based products from 18 per cent to around 5 per cent.
- Encourage domestic gypsum use instead of imports.
Solving rock supply, acid capacity, and gypsum evacuation together will ensure value retention within India.
Urea: Pricing Reform Is Inevitable
Urea imports continue to rise due to price sensitivity.
- Artificially low prices encourage excess consumption.
- The government is piloting acreage-linked urea usage.
Though politically difficult, reforms are underway. With sustained effort, urea self-sufficiency is achievable in two to three years.
Nano Fertilisers: Gradual but Permanent
Nano fertilisers are here to stay.
- Nano DAP costs around Rs 650, compared to Rs 1,350 for conventional DAP.
- Farmers save ~Rs 600 per bag, along with handling convenience.
Adoption will be gradual.
- Nano will not fully replace conventional fertilisers immediately.
- Efficiency improvements are ongoing.
- Strong extension support is needed — current manpower is limited relative to 14 crore farmer families.
The future lies in a diversified fertiliser ecosystem: conventional products, nano, blends, organics, micronutrients, and precision application.
Key Takeaways
- Nano fertilisers will complement, not replace, conventional inputs.
- Market-linked DAP pricing is timely and feasible as global prices soften.
- Balanced nutrition requires price parity, not heavy controls.
- Domestic value capture depends on phosphoric acid capacity and gypsum reforms.
