Fertiliser subsidy may hit Rs 3.32 lakh crore; ICRIER backs cash transfers

Two new policy briefs from the Indian Council for Research on International Economic Relations (ICRIER), a New Delhi think tank, recommend paying fertiliser subsidies to farmers as direct cash transfers and urge caution in using the government's AgriStack digital farm database to ration fertiliser use, according to a report published on Thursday, October 22, 2026. The briefs, by a team including agricultural economists Ashok Gulati and Ramesh Chand, estimate India's fertiliser subsidy bill for 2026-27 at Rs 2.42 lakh crore to Rs 3.32 lakh crore, about 0.6% to 0.8% of GDP, and link the rise to disruption in the Strait of Hormuz.

India keeps the price of fertilisers such as urea low for farmers and pays the difference to companies as a subsidy. When global prices jump, as they have with the conflict in West Asia and disruption to shipping through the Strait of Hormuz, the subsidy bill rises sharply. The government has said it is absorbing about Rs 2,700 on each bag of urea as global costs approach Rs 3,000 a bag. ICRIER's estimate of up to Rs 3.32 lakh crore this year shows how heavy that burden has become.

The think tank's main argument is about how the money is spent. Under the current system, the subsidy is tied to the product, and critics say low prices encourage overuse and leakage of fertiliser away from farms. Earlier ICRIER work estimated such leakages at about 20%. A direct cash transfer would give farmers money and let them buy fertiliser at market prices, which supporters say would encourage more balanced use of nutrients and cut leakages.

The briefs are more cautious about AgriStack, the digital database of farmers and their land that the government is building. Using it to decide how much fertiliser each farmer may buy could work in principle, but ICRIER says the records and systems need to be strong enough first. Errors in land or crop data could leave genuine farmers short at sowing time.

What it means for farmers: these are recommendations, not government decisions. For now, the existing subsidy system continues. But rising subsidy costs make it more likely that reforms, including some form of cash transfer or quantity limits, will be debated in the coming months.

Short-term: The briefs add to the debate on fertiliser policy during the rabi sowing season, when demand peaks and supply complaints have been reported in several states.

Long-term: If the government moves towards cash transfers, farmers would receive support directly and buy fertiliser at market prices, which could change usage patterns and the fiscal cost of the subsidy.

Who is affected: Farmers, fertiliser companies and dealers, state agriculture departments, and the Union government's budget.

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