India’s fertiliser subsidy model is broken; direct income support is the only way forward: Ashok Gulati
India’s fertiliser subsidy regime is facing scrutiny; rising global fertiliser and energy prices and rising fiscal pressures expose its inefficiencies, says Ashok Gulati.
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Context
Eminent agricultural economist Ashok Gulati has highlighted the severe fiscal and environmental risks of India’s current fertiliser subsidy regime, which could exceed Rs 3 lakh crore due to global price volatility. He argues that the highly subsidised price of urea (nitrogen) distorts farm economics, leading to excessive use, soil degradation, and fiscal strain. The article advocates for a shift from price subsidisation to direct income support via (DBT), coupled with deregulation of fertiliser prices to promote balanced nutrient application and long-term agricultural sustainability.
UPSC Perspectives
Economic
The economic lens focuses on the unsustainable fiscal burden of the current subsidy model and the need for structural reform. The government heavily subsidises urea to ensure affordable prices for farmers, absorbing the difference between the high cost of production/import and the low retail price. This price subsidisation creates a massive drain on the , particularly when global energy and fertiliser prices spike (e.g., following the Russia-Ukraine war). The resulting fiscal pressure limits government spending on more productive agricultural investments, such as irrigation and research. Furthermore, artificially low prices encourage black marketing and diversion of urea for non-agricultural industrial uses or cross-border smuggling. The proposed solution is a shift to income subsidisation via . This would involve deregulating fertiliser prices, allowing market forces to determine costs, and simultaneously providing farmers with direct cash transfers based on landholdings. This approach, similar to the decontrol of phosphatic and potassic fertilisers in the 1990s, would rationalize subsidies, reduce leakages, and align agricultural incentives with actual market conditions, addressing a key issue often tested in UPSC Mains questions regarding the rationalisation of agricultural subsidies.
Environmental
From an environmental perspective, the current urea subsidy regime creates perverse incentives that lead to severe ecological degradation. Because urea is significantly cheaper than other essential nutrients (phosphorus and potassium), farmers tend to overuse it, resulting in imbalanced fertilisation. Plants can only absorb a fraction (35-40%) of the applied nitrogen. The excess nitrogen leaches into groundwater, causing nitrate contamination (a public health risk), and runs off into surface waters, leading to eutrophication (algal blooms that deplete oxygen in water bodies). Crucially, excessive nitrogen application also leads to the emission of nitrous oxide, a potent greenhouse gas, thereby exacerbating climate change. The article highlights that the shift to and deregulated prices would force farmers to bear the true cost of urea, inherently discouraging overuse and promoting a more balanced application of (Nitrogen, Phosphorus, Potassium). This aligns with the principles of sustainable agriculture and India's commitments under climate agreements. Furthermore, the subsidy structure indirectly promotes water-intensive crops like paddy and wheat in regions like Punjab and Haryana, exacerbating groundwater depletion. Shifting incentives toward less water-intensive, nitrogen-fixing crops like pulses and oilseeds is crucial for long-term ecological balance.
Governance
The governance lens examines the political economy of agricultural reforms and the role of technology in policy implementation. The article points out that successive governments have hesitated to reform urea pricing due to the fear of political backlash from the farming community, a classic example of prioritizing short-term electoral gains over long-term structural economic health. This highlights the complex challenge of implementing politically sensitive economic reforms in a democracy. To mitigate these challenges, the government has introduced digital initiatives like , soil health cards, and mechanisms. However, the author cautions that technology alone is insufficient without fundamental pricing reform. Linking fertiliser purchases to land records and scientifically recommended dosages (via soil health cards) can help track usage and prevent diversion. The proposed transition requires a strong governance framework to accurately identify beneficiaries, ensure seamless cash transfers, and monitor the impact on crop yields. This topic frequently appears in UPSC Mains, requiring candidates to analyze the interplay between political will, technology-driven governance, and necessary economic reforms in the agricultural sector.