Budget FY28: Centre weighs up to 20% higher fertiliser subsidy amidst external headwinds 

The Centre is considering a higher fertiliser subsidy allocation in the FY28 Union Budget, with early Budget discussions pointing to a contingency buffer of up to 20% to cushion the impact of volatility in global fertiliser and fuel prices, government sources told Business Today.

The move comes as the fertiliser subsidy bill for the current financial year is expected to exceed the budgeted Rs1.70 lakh crore, following supply disruptions and a surge in international prices triggered by the West Asia conflict, and El Nino.

The government is examining buffers for both fuel and fertiliser, with the latter emerging as a particular concern after the sharp increase in import and production costs, sources said.

The proposed provision is a precautionary measure rather than an indication that the government anticipates another war-like disruption, the sources said. The final allocation will depend on the outcome of Budget discussions and the trajectory of global prices.

Finance Minister Nirmala Sitharaman recently flagged the risks posed by disruptions to international fertiliser supplies, warning that the movement of fertilisers across countries is critical to food security.

Speaking at the Munich Security Conference, Sitharaman said India imports close to 80% of its fertiliser requirement and cannot pass on elevated international prices to farmers, many of whom operate small and fragmented landholdings.

Explaining the scale of government support, she said a fertiliser unit imported at around Rs 3,000 is supplied to farmers for about Rs 300, with the government absorbing nearly Rs 2,700. She also highlighted shipping constraints, container availability and rising insurance risk premiums, adding that India had established a separate shipping emergency fund to support fertiliser transportation.

The pressure on the subsidy bill reflects a sharp increase in input costs. Government assessments presented at the annual rabi conference showed that the subsidy burden on a 45-kg bag of urea rose to Rs 2,775 from Rs 1,350 before the conflict, while the burden on a 50-kg bag of diammonium phosphate (DAP) increased to Rs 3,523 from Rs 2,102.

Imported DAP prices climbed to $940 per tonne from $681 before the conflict. Sulphur prices doubled from $532 to $1,050 per tonne, squeezing supplies of a key raw material used in phosphatic fertiliser production. Domestic production of complex fertilisers also fell 26% after the conflict compared with the corresponding period last year.

While urea import prices have eased from their May peak, elevated prices of DAP, muriate of potash and sulphur continue to pose risks to the subsidy bill.

The current budgetary allocation of Rs1.7 Lakh crore as fertiliser subsidy is expected to surpass Rs 3 Lakh crore, with more than 65% having already been utilised, as per government sources. The Department of Fertiliser has already conveyed this to the Ministry of Finance and sought a 100% increase in allocation for the current fiscal year as a revised estimate.