Fertiliser Subsidy in India: Urea, NBS and Nano Urea

Two Systems: Urea Under Control, Phosphate and Potash Under NBS

By Hitendra Deswal · Economics faculty, The Cavalier

The Centre does not treat all fertilisers alike. Urea, the nitrogen fertiliser, is sold at a statutory maximum retail price (MRP) fixed by the Centre. Everything else that carries a subsidy, mainly DAP, other phosphates, potash and complex NPKS grades, falls under the Nutrient Based Subsidy scheme, in force from 1 April 2010. Under it the Centre fixes a rupee-per-kilogram subsidy for each nutrient, and the company fixes the price (watched by the government, which has issued rules on a "reasonable" MRP). The Department of Fertilizers says 28 grades of P&K fertiliser are covered.

Before 2010, urea's cost-plus approach had been in place since the Retention Price Scheme of 1977, which paid each plant its cost and an assured return; it was replaced in stages from 2003. Nutrients other than nitrogen were meanwhile decontrolled in the early 1990s. That left farmers with cheap nitrogen and expensive everything else. NBS was meant to give a subsidy on the nutrient content and so encourage balanced use. The urea price, however, stayed frozen.

Neem Coating, Bharat Brand and PoS: Plugging the Leaks

A cheap, fixed-price input invites diversion: urea meant for farms can be sold to industry (it goes into plywood, resins and dyes) or smuggled across a border. Three measures tackle this.

• Neem-coated urea (2015). The Centre made 100% neem coating compulsory for all domestically produced urea. The coating slows the release of nitrogen, which improves nutrient use, and makes the urea unfit for industrial use. In the same year the New Urea Policy 2015 aimed to raise domestic output, improve energy efficiency in plants and rein in the subsidy bill. Bags were later cut from 50 kg to 45 kg.
• Aadhaar-linked PoS sales and iFMS. Each sale is tied to a buyer. The Integrated Fertiliser Management System tracks fertiliser from factory to retailer. The Department says it covers over 14 crore Aadhaar-linked buyers and more than 2.5 lakh retailers.
• One Nation One Fertiliser (24 August 2022). All companies, public, cooperative and private, must sell subsidised fertilisers under a single "Bharat" brand, under the Pradhan Mantri Bhartiya Janurvarak Pariyojana (PMBJP). Today urea, DAP, MOP and NPKS all carry it.

Soil Health Cards, begun in 2014-15, tell a farmer which nutrients the plot lacks. By 13 March 2026 the Centre had issued 25.89 crore of them. For the wider farm-policy map, see our page on agricultural economics, and for how the grain side of the same system works, read food security, FCI and buffer stocks.

The NPK Distortion: Cheap Nitrogen, Tired Soil

Plants need nitrogen (N), phosphorus (P) and potassium (K) in a rough balance. The usual benchmark for most Indian soils is 4 : 2 : 1. The Economic Survey tracked the ratio actually used by farmers:

The Survey blames price distortions that favour nitrogen. When one nutrient is far cheaper than the others, farmers over-apply it, and no amount of monitoring changes that signal. Excess nitrogen cuts soil organic matter, speeds up the loss of micronutrients, leaches nitrate into groundwater and gives a weaker crop response, so more fertiliser is needed for the same yield. In 2026 Union Agriculture Minister Shivraj Singh Chouhan said that heavy urea and DAP use raises acidity and greenhouse-gas emissions; the June 2026 Khet Bachao Abhiyan campaign aimed to reach one crore farmers with this message. Our note on Indian soils shows which soils are short of what.

Possible cures now in play:

• Nano urea and nano DAP. IFFCO launched liquid nano urea in 2021, followed by nano DAP, both sprayed on the leaves. IFFCO says a 500 ml bottle can replace one 45-kg bag, which would cut the quantity of nitrogen reaching the soil. The Centre promotes them through PM Kisan Samriddhi Kendras and Kisan drones, while Gujarat gives a 50% subsidy on nano fertilisers. Scientists still debate how well they work in the field, so treat claims of replacement with care.
• PM-PRANAM (PM Programme for Restoration, Awareness Generation, Nourishment and Amelioration of Mother Earth), approved on 28 June 2023 for 2023-24 to 2025-26. A state that cuts its use of urea, DAP, NPK and MOP below its three-year average earns 50% of the subsidy saved. Of that grant, 70% can go into assets such as alternative-fertiliser production units, and the rest into rewarding farmers and panchayats. Only five States/UTs had cut use in 2025-26, saving a mere 0.18 lakh tonnes.
• A price fix proposed by the Economic Survey: raise the urea price modestly and give the farmer an equal per-acre cash transfer, so that the nutrient price reflects scarcity but the farmer's income does not fall.

The Bill, the Imports and the Argument

The Centre now spends close to ₹2 lakh crore a year on fertiliser subsidy, according to PIB. Between 2022-23 and July 2025 the total came to ₹6.77 lakh crore. A bigger subsidy bill widens the fiscal deficit, as we explain on our government budgeting page.

That gap exists because India depends on imports. Domestic urea output touched a record 314.07 lakh tonnes in 2023-24 and was 306.67 lakh tonnes in 2024-25, yet India still imports a large share of its urea, about 56 lakh tonnes in 2024-25 and over one crore tonnes in 2025-26, roughly 15 to 25% of consumption. Ammonia, the raw material for urea, is almost wholly imported, as is LNG, the gas that makes it. Potash (MOP) has no domestic production at all. So when the West Asia conflict of 2026 disrupted gas and shipping through the Strait of Hormuz, India raised its stocks and bought through joint tenders. The government says that Kharif 2026 opened with about half of the season's fertiliser need already in stock. Our June 2026 article on the fertiliser self-reliance push covers that episode. For the long run, the coal-gasification mission and green ammonia are the answers (see our hydrogen page), with SECI supply agreements signed for 6.7 lakh tonnes a year of green ammonia for fertiliser units.

The argument. A new technology looks risky to a farmer, so a subsidy helps him try it. Critics say that once a technology pays for itself, the subsidy should end. They add that much of the benefit goes to the fertiliser industry and to farmers in prosperous irrigated regions, not to the poorest. Defenders reply that farming is risky, most farmers are poor, and removing the subsidy raises the cost of cultivation, especially for small and marginal farmers. A good answer states both.

How UPSC Has Asked It: Past Papers Solved

These are actual CDS and NDA questions. They test three things: where subsidy money goes, the chemistry of urea, and the fiscal effect of subsidies.

Practice MCQs (with answers)

1. A 45-kg bag of subsidised urea costs the farmer ₹266.50. This price is
   1. set each season by the company
   2. decided by state governments
   3. fixed by the Centre
   4. set by the world market
2. The Nutrient Based Subsidy scheme began on
   1. 1 April 2010
   2. 1 April 2015
   3. 1 April 2000
   4. 24 August 2022
3. The N:P:K ratio usually quoted as suitable for most Indian soils is
   1. 1 : 1 : 1
   2. 10 : 4 : 1
   3. 2 : 4 : 1
   4. 4 : 2 : 1
4. Neem coating of urea mainly
   1. lowers the import price of urea
   2. slows nitrogen release and limits diversion to industry
   3. adds phosphorus
   4. raises the retail price
5. Under One Nation One Fertiliser, subsidised fertilisers are sold under the brand
   1. Bharat
   2. Kisan
   3. Annapurna
   4. Gobar
6. Under PM-PRANAM, a state earns incentive money when it
   1. imports more urea
   2. raises the urea MRP
   3. cuts chemical fertiliser use below its three-year average
   4. buys more DAP
7. Liquid nano urea was launched by
   1. NFL
   2. IFFCO
   3. KRIBHCO
   4. RCF
8. Which fertiliser material is almost entirely imported by India?
   1. Single super phosphate
   2. Urea
   3. Neem-coated urea
   4. Muriate of potash

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