Taming the Godzilla Monster Called Fertilizer Subsidy

This is a long, hand-crafted piece. It should take you 16 minutes to read. I first build on the metaphor of Godzilla; address the four feedback loops that makes the Godzilla grow; and look at short, medium and long term recommendations to tame the Godzilla. Please settle down with green tea. It should be a fun ride.

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Godzilla, in Japanese cinema, is the patron saint of unintended consequences. A creature born from radiation that humans themselves released, grown beyond any human capacity to control.

The more I think about fertilizer subsidy, the more I am left wondering about the eerie parallels.

India's fertilizer subsidy for FY27 is budgeted at about ₹1.71 lakh crore, more than the entire ₹1.33 lakh crore the Union Budget set aside for agriculture and farmers' welfare that same year. And that figure was fixed before the Strait of Hormuz closed. The Department of Fertilizers' own preliminary estimate now puts the FY27 outgo at around ₹2.3 lakh crore.

The instrument built to support the farm sector now costs more than the ministry built to support the farm sector. How the hell did we get into this mess?

A 45-kg bag of urea landed at port in late April this year cost roughly $935 a tonne, almost double the February price, which works out to around ₹3,600 wholesale per bag.

The farmer paid ₹242 at the shop the next morning, the same price he has paid since April 2018. Every paisa of the ₹3,358 gap was absorbed by the taxpayer. The number on the bag has not moved in eight years.

Eight Years.

Before the shocks, the bill ran around ₹80,000 crore a year. Then every single year overshot its own budget. ₹70,000 crore budgeted in FY21 became ₹138,000 crore actual. ₹80,000 crore became ₹162,000 crore in FY22. The FY23 peak hit ₹254,000 crore against a ₹105,000 crore plan. FY26 budgeted ₹167,000 crore and is landing near ₹217,000 crore.

The difference is what it costs to keep ₹242 frozen while the world price moved. The FY27 bill alone is roughly equal to the Union health budget and four times the rural roads outlay. The monster now has a claim on the national budget and everything else, from irrigation to agricultural research to rural health.

It eats only after it has been fed. So who holds the leash of this monster?

The money comes from the Ministry of Finance, but the subsidy is administered by the Ministry of Chemicals and Fertilizers, not even by Agriculture. Unlike the EU and the US, which hand support to farmers directly and let prices float, India suppresses the price of the bag while propping up the floor price of the crop, breeding market distortions of Godzilla proportions on both sides of the farm gate.

We are back to my favourite wicked problem that bamboozles this sector. Aren’t we?

Principal-Agent Problem

The principal (Ministry of Finance) who pays has no operational control, the agent (Ministry of Chemicals and Fertilizers) who administers has no incentive to shrink the programme, and the cultivator the whole apparatus claims to serve is the one party whose actual behaviour nobody is pricing.

Why has it been so difficult to control this monster? Three man-made feedback loops and one biological feedback loop are at play.

The first is the frozen price.

Once ₹242 is held through a crisis it becomes politically encoded and stuck in a vicious deadlock. It becomes impossible to raise during a shock as the optics are catastrophic. It becomes impossible to raise after a shock, as the upward move looks gratuitous. The number continues to get more stuck. On 28 June 2023, the government formally notified that urea would stay at ₹242 a bag for another three years, and it committed ₹3.68 lakh crore to hold that line.

India’s Finance Minister Nirmala Sitharaman spake thus in Mumbai earlier in the month of April: 2026 "Didn't we do that during Covid? Farmers paid the same price as before. We never shifted the burden to them."

Can you see what is happening here?

The second is the manufacturer-solvency loop.

India imports roughly a fifth of its urea and nearly all of its phosphatic fertilizer. All those tonnes are physically brought in by a handful of producers and traders who bid in government import tenders. They will only do so if assured the government will reimburse them the gap between the global landed cost and the regulated price the farmer pays.

Image Credits: Swarajya

When world prices spike, the importer is in trouble. Subsidy dues become arrears. The fixed nutrient-based subsidy becomes stagnant, leaving the importer to sell at a loss.

The rational response of the importer in such conditions is to stop bidding. The tender comes back empty and the fertilizer does not arrive, leading to dry depots, queues, black-market diversion.

The government is held hostage by its own supply chain, unable to trim the subsidy without risking that the bags never show up. The subsidy is not just a price support but the standing payment that keeps the importers willing to keep the bags moving.

Here is a detailed infographic based on an excellent Swarajya piece (albeit too AI-esque) on what it takes to keep the price of a bag of urea stable.

Infographic generated based on Swarajya Data Piece

The third is the gas-import absorption loop.

Or, in simple words, why we are screwed even when India produces 80% of its urea requirement domestically.

Urea is, chemically, little more than 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.

So what if India manufactures around eighty per cent of its urea at home when a large share of that production runs on imported LNG?

Since domestic producers are reimbursed on the same cost-plus basis as importers, every rise in the landed gas price passes almost directly into their cost of production, and with the farmer's price frozen at ₹242, almost the entire increase lands on the subsidy bill rather than at the shop.

This leaves India permanently exposed to global gas markets with no hedge against them. A tanker held up at Hormuz surfaces, months later, as a hole in the Indian budget.

The fourth feedback loop is not political, or economic, but biological.

The more fertilizer a field receives, the faster it loses the organic matter that lets soil hold water and nutrients, which lowers the soil's own fertility, which forces the farmer to add still more fertilizer merely to hold the same yield.

Each of these feedback loops reinforces each other. Every fertilizer reform attempt since the Soil Health Card Era of 2015 has faced the same chokepoint due to these feedback loops.

This absurdity is compounded by the killers of the cereal hamster wheel. The government announces minimum support prices for more than twenty crops, but procures only rice, wheat, and sugarcane at any scale.

Farmers rationally grow those three which swallow more than two-thirds of all the urea in India. The cereal-and-cane monoculture has quietly killed the pulse and legume rotations that sustained Indian agriculture for millennia. In those rotations the legume fixes its own nitrogen out of the air and leaves some behind for the next crop, needing no urea at all or a tenth of what a cereal demands.

Today, India now grows roughly twice the rice it eats, exporting forty per cent of it and diverting another nine per cent to bioethanol for blending with petrol. A substantial share of that subsidized, soil-degrading, climate-warming nitrogen leaves the country embedded in grain or burns in our fuel tanks.

Can you imagine the shuddering implications when more than two-thirds of the ₹2 lakh crore spent on fertilizer subsidy each year is never harvested as food at all, but lost to pollution?

Plants take up only 35 to 40 per cent of the nitrogen applied, and the rest escapes, much of it as ammonia into the air and as nitrous oxide, a greenhouse gas, 273 times more potent than carbon dioxide, while most of the phosphatic fertilizer washes away into the water.

Neem-coating the urea has done nothing to halt this ammonia loss.

What about Nano Urea? Can a 500-ml bottle replace a full 45-kg bag? Can 44 crores a bottle a year ensure that India would no longer need to import urea at all?

Let’s do the math.

A 45-kg bag is 46 per cent nitrogen. It carries about 20 kilograms of it. A 500-ml bottle of nano-urea, at 4 per cent nitrogen by volume, carries about 20 grams.

The agronomists The Hindu consulted put the problem in crop terms: A wheat crop draws roughly 25 kilograms of nitrogen from the field to yield a tonne, and a plant never takes up all the nitrogen it is given.

N.K. Tomar, a retired soil science professor, ran the numbers. Even if a plant absorbed every last gram of the 20 grams in a nano-urea bottle, it would yield about 368 grams of wheat grain, against the roughly 496 kilograms a conventional bag supports at 60 per cent uptake.

Twenty grams misted onto leaves cannot stand in for the 20 kilograms a bag provides.

IFFCO's own field trials, run across thousands of plots, reported an average yield increase of about 8 per cent. It could be useful as a supplement, but nowhere near the doubling that replacing a whole bag would require.

Even the former ICAR director-general under whom the product was cleared has said the proof of its benefit is still awaited.

What about DBT transfer?

Analysts like Uttam Gupta talk often about decontrolling fertilizer outright: Scrap the price and distribution controls, let the MRP find its own level, and protect poor farmers with a direct cash transfer instead of a hidden subsidy buried in the bag.

Here is the thing.

DBT transfers cannot work in isolation without working on the soil.

We cannot simply wish the problem away by only changing who pays without considering what the money would buy. Cash-transfer reform and the soil-rebuilding work have to move together.

Now that we recognize the false silver bullets, can we take a full stock of where we are.

It is pretty absurdly ironic, if you come to think of it.

How do we address this ridiculous predicament, when the largest single claim the farm economy makes on the exchequer is public money converted into polluted air, fouled water, and a warming atmosphere over the very fields it was meant to nourish?

The creature born to feed the country has begun, quietly, to poison it, and the budget that sustains the creature grows every year.

Let’s be clear. It’s not that India doesn’t understand what needs to be done to tackle this monster.

In his Mann ki Baat address of November 2017, the Prime Minister asked the nation to halve fertilizer use within five years. The consumption naturally rose as there were no clear machinery to coordinate the words into action.

The Inter-ministerial National Nitrogen Steering Committee, as Nandula Raghuram points out in her excellent piece, set up to provide exactly that coordination, saw its tenure expire before a single one of its recommendations was acted upon.

PM-PRANAM was launched in June 2023 to share half of any subsidy savings with states that cut chemical fertilizer.

The states, believe it or not, delivered the goods.

Fourteen states cut their fertilizer consumption by 1.51 million tonnes in 2023-24. Karnataka delivered 30 per cent of the savings and Maharashtra, West Bengal, and Andhra Pradesh delivered another 58 per cent. The Parliamentary Standing Committee reported on 13 March 2026 that not a single rupee had been disbursed.

The steering committee meant to run the transfers had met twice in three years. The Cabinet note had been withheld under RTI, The scheme sunset on 31 March 2026 having paid out nothing.

I am sorry to be blunt. Today, given our political timidity, we can never kill this monster.

At best, we could tame it. If we are serious about change, where do we begin? Here is a series of recommendations from the short term to the medium term to the long term.

Short Term Recommendations for the next six to 12 months:

1. Operationalize PM-PRANAM retroactively. Pay Karnataka, Maharashtra, West Bengal, and Andhra Pradesh for the reductions they have already banked, an outlay of perhaps ₹3,000 to ₹4,000 crore against a ₹2 lakh crore envelope. There are obviously fiscal implications that I haven’t fully considered, but the precedent this sets is enormous and is worth the risk. It establishes, for the first time, that the Centre will pay a State to use less fertilizer.

2. Fund The Pre-Monsoon Dry Sowing, the practice Andhra Pradesh's community-managed natural farming programme has grown into a hundred-thousand-farmer movement over five years, anchored in the semi-arid drylands of Anantapuram and now codified into nine ecological principles.

The economics have moved far enough to justify a serious scaling bet. A 2023 True Cost Accounting study of APCNF found yields 11 per cent higher, farmer net incomes 49 per cent higher, and crop diversity 88 per cent higher than on comparable conventional farms, alongside a fall of more than 50 per cent in pesticide and fertilizer use. The Kutch adaptation in saline, drought-stressed Gujarat shows that pelletised dry sowing could survive even India's harshest geographies.

3. Plug the 20–25 per cent urea diversion. Subsidized urea continues to leak into industrial use — resin, plywood, dairy adulteration — despite neem-coating and PoS authentication. The Economic Survey of 2015-16 once put total leakage, including smuggling across borders, as high as 40 per cent. A focused crackdown on industrial diversion, particularly in the resin and plywood corridors of UP, Punjab, and Gujarat, could recover ₹15,000–20,000 crore annually without touching MRP or supply.

4. Linking Soil Health Card recommendations with fertilizer purchase at PoS can definitely push the needle. More than 23 crore cards have been issued since 2015. But the data is being poorly used to simply monitor the scheme rather instead of shaping how fertilizer is sold. A farmer with high-nitrogen soil can still buy as many urea bags as he likes. Where farmers do follow their card's recommendations, government assessments report chemical-fertilizer use falling by 8 to 10 per cent with yields holding or rising. Wiring that advice into the point of sale, so soil data is cross-checked against what is actually being bought, would turn a card farmers can ignore into a nudge at the moment of purchase. This is also a good DPI use-case.

5. Commission the bio-input resource centres. National Mission on Natural Farming aims for 10,000 BRCs, cluster-level units that supply ready-to-use bio-inputs. The central assistance is modest with ₹1 lakh per centre. The real constraint is not money, but the infrastructure and entrepreneurs the grant does not cover. Bio-inputs are punishingly labor-intensive. Substituting a quintal of chemical NPK can demand a trolley of manure and several rounds of bioculture. We need more innovations that can address this. I know of few entrepreneurs addressing this.

Medium Term Recommendations for FY 28 - 30 - This is where we tackle structural reforms.

1. Bring urea under the nutrient-based subsidy regime. The Commission for Agricultural Costs and Prices recommended this in its 2023 Kharif non-price recommendations, and the Sharad Pawar committee first urged it back in 2012. Urea's exclusion is the fundamental reason why its price stayed frozen while phosphatic and potassic prices drifted up. Addressing this distortion is critical in addressing the overuse of nitrogen in our soil systems.

2. Index the Urea bag price to inflation at four to six per cent a year. Let’s not treat farmers with kid gloves. They understand.

3. Shift the direct transfer from the landholder to the actual cultivator. This closes the trapdoor that excludes the ten million hectares of leased-in land farmed by tenants who own nothing on paper. Telangana and Andhra Pradesh are pioneering efforts in bringing tenants into the ambit of the system. Early days. Lot can be done in this regard.

4. Broaden procurement beyond rice, wheat, and sugarcane. Put real purchasing weight behind pulses and oilseeds, as farmers will grow what the state reliably buys. The vehicle exists in the Dalhan Aatmanirbharta Mission, launched in October 2025 with ₹11,440 crore to lift pulse output to 350 lakh tonnes. As of April, pulse area up grew barely 1.26 per cent, against a ten per cent fall over the preceding three years. Growing pulses will fix nitrogen in the soil and reduce our foreign exchequer with self-reliance on pulses.

5. The Talcher coal-gasification plant in Odisha, India's first, was supposed to add 12.7 lakh tonnes of coal-based urea a year and cut LNG dependence. It has slipped repeatedly from its original 2024 deadline and sat at roughly two-thirds complete in early 2025. Can we get it running?

   Long Term Recommendations - This where we focus on Atma Nirbharta (Self-Reliance)

6. Scale green ammonia. The SECI tender that closed on 30 March 2026 allocated 724,000 tonnes a year across thirteen fertilizer plants, on ten-year fixed-price contracts at ₹49.75 to ₹64.74 a kilogram, roughly half what Europe's benchmark auctions discovered.

   India holds an advantage Europe and Korea do not: solar irradiance, a domestic electrolyser buildout, and a captive offtake market. The catch is water. Splitting water for hydrogen takes around 9 litres per kilogram on the chemistry alone, and 20 to 30 litres once purification and cooling are counted, and the green ammonia made from that hydrogen needs the same input at scale.

7. We need to hedge the geography of our fertiliser supply, because the import map is dangerously concentrated. Nearly 70 per cent of urea imports come from a handful of Gulf states — Oman, Saudi Arabia, the UAE, and Bahrain. Potash is imported in full, drawn from Canada, Russia, Belarus, and Israel. About 80 per cent of phosphoric acid comes from Jordan, Morocco, Senegal, Tunisia, and China. The diversification already under way runs along two tracks: securing finished product through long-term offtake deals, such as the five-year agreements signed in 2025 with Morocco's OCP and with Saudi Arabia, and building processing capacity at home, as with Coromandel's new acid plant and Paradeep Phosphates' expansion. Both routes chip away at the single-chokepoint exposure that the Strait of Hormuz represents.

   A Togliatti urea venture in Russia would do the same on the nitrogen side. Fast-tracked in December 2025, the ₹20,000 crore project is a 50:50 joint venture between Russia's Uralchem and a consortium of Indian state firms, Indian Potash, RCF, and NFL. It is designed to produce two million tonnes of urea a year, the entire output earmarked for India, by leveraging Russia's cheap gas, and is expected to be operational by 2027-28.

   More than 70 per cent of India’s fertilizer imports currently pass through the Strait of Hormuz, and a dedicated plant on the far side of Eurasia routes around that single point of failure.

8. Instead of paying a fertilizer manufacturer for a molecule delivered, can we pay the grower for an outcome held in the soil, whether that is organic carbon built, nitrogen-use efficiency improved, or nitrous oxide avoided? The protocols are still maturing. The revenue rail is coming into view through the jurisdictional carbon-credit work the government has been exploring with the Environmental Defense Fund, and through the emerging Indian carbon market.

9. India can build on G20 Leadership and take lead in reviving the Inter-ministerial National Nitrogen Steering Committee. Would Modi lead the way, now that he has been awarded Agricola Award by FAO?

As history has often taught us, every crisis is a wonderful opportunity . Shall we convert this crisis into an opportunity?

So, what do you think?

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