Economic Survey 2025-26: Economic Survey flags a urea price reset, backs direct cash transfers to farmers

The Economic Survey 2025-26 has called for a rethink of India’s fertiliser subsidy system, recommending a "modest increase" in the retail urea prices along with direct cash transfers to farmers to neutralise the impact.

Urea has been sold at a fixed retail price of Rs 242 per 45 kg bag since 2018, making it far cheaper than other fertilisers. According to the Survey, this pricing distortion has encouraged excessive use of urea, upsetting soil nutrition and hurting long-term farm productivity.

Instead of subsidising fertilisers at the factory or retail level, the Survey suggests shifting support directly into farmers’ bank accounts, calculated on a per-acre basis, allowing fertiliser prices to better reflect actual costs.

The Survey points out that heavy dependence on urea has badly skewed the nutrient balance in Indian agriculture. The nitrogen-phosphorus-potassium (NPK) usage ratio has worsened from 4:3.2:1 in 2009-10 to 10.9:4.1:1 in 2023-24, even though agronomists recommend a much more balanced 4:2:1 ratio for most crops.

This overuse of nitrogen, it says, is degrading soil organic matter, draining essential micronutrients, weakening soil structure, and contaminating groundwater. In several irrigated regions, farmers are now applying more fertiliser without seeing yield improvements, signalling inefficiency rather than under-application.

Over the years, the government has introduced measures such as neem-coated urea, nutrient-based pricing for other fertilisers, and Aadhaar-based monitoring of sales. However, the Survey notes that these steps largely control supply and do little to change farmers’ actual fertiliser choices, which are still driven by cheap urea. To address this, the Survey proposes decoupling income support from fertiliser prices, so that farmers are not nudged towards one nutrient simply because it is cheaper.

One of the most concerning signals flagged by the Survey is the flattening of the yield response. In many regions, higher fertiliser consumption is no longer translating into higher output, suggesting that the problem lies not in input quantity but in input quality and balance. Without correction, this trend could cap future foodgrain growth.

Excessive nitrogen application does not just damage soil; it also increases nitrous oxide emissions, a greenhouse gas far more potent than carbon dioxide. The Survey’s push for balanced fertilisation aligns with India’s climate commitments, suggesting that fertiliser reform could become a climate mitigation tool within agriculture.

Under the proposed framework, farmers would receive direct transfers that preserve their overall purchasing power, even as urea prices rise gradually. Efficient users of fertiliser would effectively save money, while those overusing urea would face stronger incentives to adopt balanced fertilisation, soil testing, nano-urea, and organic alternatives. The Survey also recommends tailoring transfers to agro-climatic zones and crop types, acknowledging that regions growing rice, wheat, or sugarcane naturally require more nitrogen than rain-fed areas producing pulses or coarse grains.

The Survey implicitly warns that postponing fertiliser reform could make future corrections more painful. Continued soil degradation would demand even higher fertiliser use to sustain yields, pushing up subsidy costs and environmental damage.

According to the Survey, India’s digital infrastructure sch as PM-Kisan, Aadhaar-linked fertiliser sales, and the Integrated Fertiliser Management System, provide the necessary tools to implement such targeted cash transfers and monitor usage effectively. It suggests beginning with pilot programmes across different farming systems before expanding the model nationwide, while also addressing issues related to tenant farmers and land ownership.

The ultimate aim, the Survey underlines, is not to reduce fertiliser consumption, but to ensure nutrients are used in line with soil health and crop needs, improving yields while lowering fertiliser use per unit of output over time.