Fertiliser subsidy zooms amid unrestrained consumption, weak rupee, Pg5

Key Highlights:

• The fertilizer subsidy bill for 2025-26 exceeded the Budget Estimate by over Rs 18,500 crore.
• The revised outlay is Rs 1,86,460 crore, including Rs 1,26,460 crore for urea and Rs 60,000 crore for other fertilizers.
• Budget 2026-27 targets a total subsidy of Rs 1,70,799 crore: Rs 1,16,799 crore on urea and Rs 54,000 crore on other subsidies.
• Urea's MRP has remained unchanged at Rs 5,360 per tonne since November 2012, leading to increased consumption.
• DAP consumption has decreased, leading to shortages and black marketing.

Detailed Insights:

• The under-pricing of urea and DAP has led to increased urea consumption, rising from below 30 million tonnes in 2017-18 to over 40 million tonnes in FY25-26.
• Stagnant domestic urea production has resulted in soaring urea imports, potentially exceeding 10 million tonnes in FY25-26.
• The informal freezing of DAP's MRP at Rs 27,000 per tonne since the Covid-19 pandemic has led to shortages and black marketing.
• Farmers are substituting scarce DAP with complex fertilizers, some of which retail at higher prices despite containing less phosphorus.
• Global price increases, a weakening rupee (from 86.6 to 91.9 to the dollar), and geopolitical conflicts may further increase the fertilizer subsidy.

Key Concepts Involved:

• Fertilizer Subsidy: Government financial assistance to lower the cost of fertilizers for farmers.
• Maximum Retail Price (MRP): The highest price at which a product can be sold to consumers.
• Di-ammonium Phosphate (DAP): A widely used phosphatic fertilizer.