The Strait of Hormuz crisis has sent oil prices surging, shipping routes into disarray, and fertilizer markets into panic mode. But it has also accelerated a long overdue shift. Countries rattled by the turmoil are now looking beyond fragile fossil fuel supply chains toward more resilient alternatives: renewable energy, diversified trade corridors, domestic fertilizer production, storage infrastructure, and less dependence on a single geopolitical chokepoint.
Among these readjustments, one is imperative for India’s farm economy: fixing its dangerous dependence on imported fertilizer inputs moving through a single geopolitical chokepoint. More than 70 per cent of India’s fertilizer imports pass through Hormuz. Any disruption there quickly spills into higher subsidy bills, fertilizer shortages, fiscal strain and food inflation.
India’s massive fertilizer subsidy is also a climate problem because it locks the country into the overuse of fossil fuel-intensive chemical fertilizers that drive greenhouse gas emissions, soil degradation, groundwater pollution, and inefficient farming practices.
With fertilizer subsidy already pegged at Rs1.71 lakh crore for FY2026-27, the latest tensions are forcing India to confront a question it has postponed for years: how long can one of the world’s largest agricultural economies remain so exposed to imported nutrients, volatile shipping routes, and fossil fuel-linked supply chains?
India already knows many of the solutions.
States like Andhra Pradesh and Karnataka have shown that reducing chemical fertilizer use while protecting farmer incomes is possible. Soil-health linked fertilizer sales, pulse procurement reforms, green ammonia production, better nitrogen pricing, and community-led natural farming models are all waiting to be scaled. The problem lies in the absence of coordination and political courage.
Godzilla
Godzilla, in Japanese cinema, is the patron saint of unintended consequences. A creature born from radiation humans themselves unleashed, growing beyond any human capacity to control. The more one looks at India’s fertilizer subsidy system, the more the parallels become impossible to ignore.
A 45-kg bag of urea that landed at Indian ports in April this year reportedly cost around Rs3,600 wholesale. Farmers, however, continued to buy it at Rs242, the price fixed since April 2018. Over these eight years, the taxpayer absorbed a Rs3,358 outflow.
The fertilizer subsidy originally budgeted at Rs1.71 lakh crore – before the Strait of Hormuz tensions escalated – has now been revised up by the Department of Fertilizers to Rs2.3 lakh crore.
Pause for a second and absorb the absurdity. India is now spending more on subsidizing fertilizer than the Union Budget allocates to the entire agriculture and farmers’ welfare ministry.
The system created to support farming now costs more than the ministry meant to support farming.
How did we get here?
The Rs242 Illusion
Before global commodity shocks, India’s fertilizer subsidy bill hovered around Rs80,000 crore annually. Since then, it has exploded in every budget estimate:
- FY2020-21: Rs70,000 crore budgeted, Rs1.38 lakh crore actual
- FY2021-22: Rs80,000 crore budgeted, Rs1.62 lakh crore actual
- FY2023-24: Rs1.05 lakh crore budgeted, Rs2.54 lakh crore actual
- FY2025-26: Rs1.67 lakh crore budgeted, likely nearing Rs2.17 lakh crore
The FY2026-27 subsidy bill alone is now comparable to the Union health budget and roughly four times the allocation for rural roads.
The system nobody controls
The weirdest part of India’s fertilizer subsidy regime is that the ministry paying for it is not the one controlling it.
The Ministry of Finance funds the subsidy. The Ministry of Chemicals and Fertilizers administers it. The Ministry of Agriculture, whose sector depends on it, sits oddly on the sidelines.
Unlike the EU or the US, where governments increasingly support farmers directly while allowing input prices to move with markets, India suppresses the price of fertilizer while simultaneously guaranteeing prices for crops like rice and wheat.
The result is distortion on both sides of the farm gate.
Economists call this a “principal-agent problem”. The payer has no operational control. The administrator has no incentive to reduce the programme. The farmer, supposedly the centre of the entire system, is the only stakeholder whose actual behaviour is barely being shaped at all.
Four feedback loops feeding the beast
The reason fertilizer reform repeatedly fails in India is because the system now operates through four powerful feedback loops.
1. The frozen price loop
Once Rs242 became politically untouchable during crises like Covid-19, it became nearly impossible to raise. Raise prices during a crisis and governments fear backlash. Raise them after a crisis and it appears arbitrary. So the number stays frozen forever.
On 28 June 2023, the government formally extended the Rs242 cap for another three years, reportedly committing Rs3.68 lakh crore to maintain it.
Finance Minister Nirmala Sitharaman defended the policy earlier this year by saying farmers should not bear the burden of global shocks. That’s politically understandable, but economically explosive.
2. The importer survival loop
India imports roughly a fifth of its urea and nearly all phosphatic fertilizer. A handful of firms physically bring those shipments into India through government tenders.
But importers only participate because the government promises to reimburse the gap between global prices and the ?242 retail price.
When global prices surge, subsidy dues pile up. Companies face losses, and tenders start returning empty. This causes entire supply chains to wobble, causing shortages and helping black markets thrive. The government then finds itself trapped.
This subsidy has effectively become life support for the entire fertilizer supply chain.
3. The gas-urea loop
Because urea is basically solidified natural gas. The gas supplies both the hydrogen feedstock and the energy to bind it with nitrogen drawn from the air. It makes up roughly 60 to 80 per cent of the cost of producing a tonne.
India may manufacture around 80 per cent of its own urea, but much of that production still depends on imported LNG.
So when global gas prices spike, domestic production costs rise too. Since farmers continue paying Rs242, the subsidy bill absorbs nearly the entire increase.
This means India remains permanently exposed to volatile global energy markets. A geopolitical crisis in West Asia eventually becomes an agricultural finance crisis in New Delhi.
4. The soil addiction loop
The fourth feedback loop is biological.
The more chemical fertilizer soils receive, the faster they lose the organic matter that naturally retains water and nutrients. Over time, soils become less fertile and require even more fertilizer just to maintain the same yields.
India’s current cropping system makes this worse.
Although the government announces MSPs for more than 20 crops, large-scale procurement remains heavily concentrated around rice, wheat and sugarcane. Farmers logically grow what the state reliably buys. These three crops alone consume more than two-thirds of India’s urea.
In the process, India has steadily abandoned traditional pulse and legume rotations that naturally fixed nitrogen into soils. Pulses essentially manufacture their own nitrogen from the atmosphere. Rice and sugarcane do not.
The result is staggering. India now produces roughly twice the rice it actually consumes. Around 40 per cent is exported. Another share gets diverted towards ethanol blending.
In other words, huge quantities of taxpayer-funded nitrogen are either exported abroad or burnt in fuel tanks.
Meanwhile, plants absorb only around 35 to 40 per cent of the nitrogen applied to fields. The rest escapes into air and water.
Some of it becomes nitrous oxide, a greenhouse gas nearly 273 times more potent than carbon dioxide.
The subsidy is no longer just feeding crops. It is also feeding pollution, climate change and groundwater contamination.
Nano urea is not a magic wand
The government and fertilizer companies have aggressively promoted nano urea as a breakthrough solution. But the numbers tell a more cautious story.
A conventional 45-kg bag of urea contains roughly 20 kilograms of nitrogen. A 500-ml nano urea bottle contains roughly 20 grams. That is not a typo: twenty grams versus twenty kilograms.
Field trials by IFFCO have shown modest yield improvements, reportedly around 8 per cent in some cases. Useful as a supplement perhaps. But nowhere near capable of replacing conventional urea at scale.
Even former scientists associated with its approval have publicly stated that long-term evidence remains incomplete.
Nano urea may become part of the solution. It is not the solution itself.
Cash transfers alone won’t save the system
Many economists argue India should simply decontrol fertilizer prices and compensate poor farmers through direct cash transfers. In theory, it sounds elegant. In practice, it ignores the soil itself.
A cash transfer merely changes who pays. It does not change what farmers are incentivized to grow, how degraded soils behave, or why nitrogen demand keeps rising in the first place.
Without rebuilding soil health, DBT risks becoming an accounting reform layered onto a broken ecological system.
The irony: India already knows what to do
India has already experimented with several sensible reforms.
In 2017, Prime Minister Narendra Modi called for halving fertilizer use within five years. Consumption instead continued rising because no institutional machinery translated rhetoric into implementation.
The Inter-ministerial National Nitrogen Steering Committee, created to coordinate reforms, reportedly expired before acting on its own recommendations.
Then came PM PRANAM in 2023, a scheme designed to reward states for reducing chemical fertilizer use.
And something remarkable happened. States actually responded. Karnataka reportedly delivered nearly 30 per cent of the reductions achieved nationally. Maharashtra, West Bengal, and Andhra Pradesh contributed major cuts too.
Yet according to parliamentary reports, not a single rupee was ever disbursed to these states before the scheme expired in March 2026. India’s problem is no longer lack of ideas. It is a failure of execution.
So what would actually work?
Answer: a portfolio of reforms that operate simultaneously.
Pay states to reduce fertilizer use
PM PRANAM should be revived immediately and implemented retroactively.
Rewarding states that successfully reduce fertilizer dependence creates an entirely new incentive structure. For the first time, governments would get paid for using less fertilizer instead of more.
Scale natural farming where it already works
Andhra Pradesh’s community-managed natural farming programme has quietly become one of the world’s largest agroecology experiments.
Its pre-monsoon dry sowing model reportedly increased farmer incomes, crop diversity and yields while sharply reducing fertilizer and pesticide use.
Instead of endlessly debating whether such models are scalable, India should begin seriously funding their expansion in drought-prone regions where conventional systems are already failing.
Use technology better
India’s Soil Health Card programme has issued more than 23 crore cards since 2015. Yet farmers can still purchase fertilizer with almost no linkage to soil recommendations.
Integrating soil data into fertilizer sales systems could create behavioural nudges at the point of purchase itself. Farmers with already nitrogen-rich soils should not be encouraged to keep overapplying urea.
This is exactly the kind of digital public infrastructure use-case India excels at building.
Fix crop incentives
As long as procurement remains dominated by rice, wheat and sugarcane, fertilizer overuse will continue. India needs serious procurement support for pulses and oilseeds.
Pulses naturally restore nitrogen to soils. They also reduce import dependence and improve dietary diversity.
The recently launched Dalhan Aatmanirbharta Mission is a start. But unless procurement genuinely shifts, farmers will continue following the money toward cereals.
Bring urea under nutrient-based pricing
Experts have recommended this for years.
Urea remains outside India’s nutrient-based subsidy system, which is precisely why its price distortion became so severe.
Bringing it under the same framework as phosphatic and potassic fertilizers would gradually reduce nitrogen overuse and make the system more rational.
Green ammonia
India’s clean energy transition conversation rarely includes fertilizer. Green ammonia could eventually reduce India’s exposure to imported gas markets. India possesses advantages Europe does not: abundant solar energy, growing electrolyser manufacturing, and massive domestic demand.
But it also requires water, infrastructure and serious long-term planning.
Diversifying import routes is equally critical. India currently depends heavily on Gulf suppliers for urea, on countries like Canada and Belarus for potash, and on Morocco and China for phosphatic inputs.
Projects like the proposed Russia-India urea venture and expanded domestic phosphatic processing could reduce vulnerability to chokepoints like Hormuz.
The real reform India needs
Ultimately, the biggest shift may not be technological at all. Instead of paying fertilizer manufacturers for every molecule sold, India may eventually need to pay farmers for ecological outcomes instead.
Build soil carbon. Improve nitrogen efficiency. Diversify crops.
That transition is still emerging. But the foundations already exist through India’s evolving carbon market frameworks and climate-finance experiments.
India’s largest agricultural subsidy increasingly finances polluted rivers, degraded soils, greenhouse gas emissions and fiscal stress.
The system created to feed the country is slowly poisoning the very land it depends on.
Godzilla was never evil. It was simply the consequence of forces humans unleashed without fully understanding them.
India’s fertilizer subsidy system now looks eerily similar. The question is whether India still has enough political courage left to tame it before the next crisis arrives.
Venky Ramachandran is the founder of Krishi.System, a research and consulting firm, based in Hyderabad. Founded in 2019, Krishi.System provides research to over 45,000 subscribers, manages India’s largest community of agripreneurs and consults with for-profits, non-profits and governments on all things agritech.
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Tl;dr: A summary for the busy, the curious, and the done-for-today
The solutions: Build soil carbon.
Improve nitrogen efficiency.
Diversify crops.
In short: Reward the outcome, not the chemical input.
The question is whether India has the political courage to carry out unpopular farm reforms.
