Provide shock at sea, subsidy pressure at house: Fertiliser imports threaten India’s fiscal math

India’s fiscal technique is going through an ideal storm because the escalating Israel-US-Iran battle drives up the price of each imported fertilisers and home manufacturing. This creates a troublesome dilemma for the federal government: it should take in the rising worth hole to forestall a surge in meals inflation, even when it threatens the nation’s rigorously deliberate fiscal targets.

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The fiscal math might have already come underneath strain. Finance Minister Nirmala Sitharaman had set an bold path for fiscal consolidation within the funds for 2026-27. “In RE (revised estimates) for 2025-26, the fiscal deficit has been estimated at par with BE (funds estimates) of 2025-26 at 4.4% of GDP. According to the brand new fiscal prudence path of debt consolidation, the fiscal deficit in BE 2026-27 is estimated to be 4.3% of GDP,” she mentioned.

Nonetheless, D.Okay. Srivastava, Chief Coverage Advisor at EY, warned that the targets set out by Sitharaman may face vital headwinds. He famous that subsidies for meals and petroleum, alongside fertilisers, will probably be “a lot bigger than the budgeted quantities in FY27. The precise quantities would depend upon how lengthy the West Asian disaster lasts and what the Indian crude basket costs are. The funds estimates have been calculated assuming base costs of $70-75 a barrel. So inside only a month or two into the brand new fiscal yr, the federal government should look at the scope of extra subsidies.”

For FY26, the fertiliser subsidy is projected to be 14% above the funds at Rs 1.92 lakh crore and three% above the revised estimates, pushed by elevated di-ammonium phosphate (DAP) and urea imports, mentioned Pushan Sharma, Director, Crisil Intelligence. “This unavoidable fiscal pressure—absorbing prices to protect farmers—will widen the deficit or drive expenditure reallocations.”

Dedication to Welfare

Regardless of these pressures, the federal government has signalled that farmers won’t bear the brunt of world worth spikes. Referring to the precedent set through the pandemic, Sitharaman mentioned at an occasion in Mumbai over the weekend, “Didn’t we do that in Covid? When fertiliser costs overseas shot via the roof, we nonetheless procured them at these costs and ensured there have been no provide disruptions. Above all, costs weren’t handed on to farmers. Farmers paid the identical worth as earlier than. We by no means shifted the burden to them.”

Beneath the Direct Profit Switch (DBT) scheme, the federal government continues to offer a 100% subsidy to producers primarily based on precise gross sales to farmers, making certain retail costs stay steady.

India is the world’s second-largest producer and client of fertilisers, however its reliance on world markets is profound. Whereas nominal import figures present particular gaps—20% for urea and 50% for DAP—the “efficient” dependence is far larger.

In line with a report by ICRIER, after accounting for inputs like LNG (used for urea) and chemical compounds, India’s provide chain dependence rises to 68-70%. And the federal government mentioned just lately that the Gulf area supplies 20-30% of India’s urea and 30% of DAP. Crucially, this area additionally provides 50% of India’s LNG. Battle-driven restrictions within the Strait of Hormuz have disrupted container motion, resulting in localised shortages and better freight prices.

A Ballooning Subsidy Invoice

The hole between budgeted figures and market actuality is widening quickly.

As per an evaluation by PRS Legislative of the demand for grants of the Ministry of Chemical substances and Fertilisers, the overall fertiliser subsidy for 2025-26 was budgeted at Rs 1.68 lakh crore however was elevated by about 11% within the revised estimates to Rs 1.86 lakh crore.

For the present fiscal, Sitharaman has allotted Rs 1.71 lakh crore for complete fertiliser subsidy, however by all accessible indications, the precise numbers for FY26 and the present fiscal might be far larger. Some studies have prompt it may cross the Rs 2 lakh crore mark. The Rs 1.71 lakh crore contains about Rs 1.16 lakh crore as urea subsidy, and the remaining about Rs 54,000 crore for non-urea fertilisers underneath the nutrient-based subsidy (NBS) regime.

Pushan Sharma, Director, Crisil Intelligence, mentioned the West Asia disaster has triggered a projected 20-25% surge within the FY27 fertiliser subsidy. “Pure fuel shortages—exacerbated by the Strait of Hormuz closure—have curtailed home urea manufacturing by 25% in March 2026. In April, just a few gamers have reported that import costs have almost doubled to USD 935-959/MT for urea (India imports ~20% of its urea requirement) and equally, sulphur prices have spiked 50% to USD 630/MT CFR, compounding the burden on advanced fertilisers.”

The upcoming kharif 2026 season is already seeing larger necessities. The Cupboard just lately authorised Nutrient-Primarily based Subsidy (NBS) charges for the season with a rise of Rs 4,317 crore over the earlier yr. An official assertion famous that “The tentative budgetary requirement for Kharif season 2026 can be roughly Rs 41,533.81 crore. That is roughly Rs 4,317 crore greater than the budgetary requirement for the Kharif 2025 season. The funds for Kharif 2025 was Rs 37,216.15 crore.”

Market Actuality vs Home Manufacturing

The worth of important vitamins has seen a pointy year-on-year climb as of March this yr. In line with knowledge from the ministry, urea costs had risen by 20% yr on yr, DAP was up by over 10%, and MOP costs have been up by 23%. Since March, there was additional worth escalation, with studies suggesting urea costs have almost doubled.

Whereas the federal government has efficiently boosted home urea manufacturing by 12,000–15,000 tonnes per day via elevated LNG provides, the sheer scale of demand—estimated at 390 lakh tonnes for the Kharif 2026 season—signifies that worldwide market volatility will proceed to dictate the well being of India’s fiscal deficit.

Sharma of Crisil mentioned that the federal government should safe long-term LNG and uncooked materials contracts to bypass unstable spot markets, speed up home manufacturing capability, aggressively promote environment friendly alternate options like nano urea and DAP, and optimise the Nutrient-Primarily based Subsidy framework to scale back structural import dependency whereas making certain farmer affordability.