BATHINDA: India’s fertiliser subsidy system is costing the nation more than it is protecting farmers. The problem is not that farmers use chemical fertilisers, but that a decade-old pricing rule has kept nitrogen artificially cheap. While farmers are simply responding to a price signal controlled by the government, the country is absorbing the subsidy bill, which fluctuates with global gas prices, along with the costs of greenhouse gases released during fertiliser production and application, and the deterioration of soil and groundwater, according to a new paper by research consultancy Climate Trends titled ‘The Economics of Cultivation’.The study examined fertiliser-intensive wheat and paddy cultivation across eight states. In every wheat case, the social return — the total benefit to society once environmental and fiscal costs are accounted for — was 36% to 182% lower than the direct financial benefit to farmers. In two of the five cases, the social return turned negative. The gap was not created by farmers’ choices but by the artificially low fixed price of urea, which has encouraged its large-scale use.These hidden costs are becoming increasingly evident as India’s fertiliser-use efficiency has collapsed. The quantity of grain produced per kg of fertiliser applied fell from 13.4 kg in 1970 to 2.7 kg in 2015. Soil testing supports this trend, with 97% of samples nationally showing low nitrogen levels and 85% showing low organic carbon levels, despite the over-application of nitrogen. Nitrate levels exceeding the BIS drinking-water limit have also been recorded in groundwater in Punjab, Haryana, Rajasthan, UP and Tamil Nadu.“The excessive dependence on chemical fertilizers comes at a far greater cost to the nation than what is reflected in their market prices or subsidy allocations. The hidden costs, in terms of soil degradation, declining soil health, environmental damage, energy dependence and the growing fiscal burden on the exchequer, are increasingly difficult to ignore,” said Palak Balyan, lead author of the study and research lead at Climate Trends.This vulnerability is not theoretical. When the Strait of Hormuz, which carries about a third of all seaborne fertiliser trade, effectively closed in February 2026, urea prices jumped 53.7% in a month to around US$726 a tonne, a four-year high.India draws 41% of its crude oil, 55% of its LNG and up to 90% of its LPG through the Strait of Hormuz. Fertiliser plants were capped at 60-70% of normal gas supply, and domestic urea output fell by 0.8 million tonnes in March alone. India avoided a shortage only by drawing down stockpiles and adding 6.9 million tonnes of domestic urea and 1.8 million tonnes of imports within three months. The cost was absorbed entirely by the exchequer, without any actual reduction in import dependence. The same pattern played out in 2022, when the Russia-Ukraine war first disrupted global nitrogen and potash supplies.“Recent geopolitical developments, particularly the escalation of US-Iran tensions and disruptions around the Strait of Hormuz, have exposed India’s vulnerability to global energy shocks, with rising energy costs directly impacting fertilizer production, input prices and the government’s subsidy burden. This makes it imperative to rationalise fertilizer consumption through greater awareness, efficient application and a gradual shift towards bio-based inputs and organic farming, rather than seeking to eliminate fertilizer use altogether. As India looks towards COP31, this also presents an opportunity to strengthen the conversation around climate-resilient agriculture, sustainable farming practices and reduced dependence on energy-intensive inputs,” said Aarti Khosla, founder-director of Climate Trends.Shreya Jai, energy lead at Climate Trends, added, “India’s fertiliser challenge is as much an energy security issue as it is an agricultural one. The production of synthetic nitrogen is deeply tied to natural gas, exposing the sector to international fuel price volatility, geopolitical disruptions and import dependence. At the same time, the fiscal burden of fertiliser subsidies and the emissions associated with their production and application reveal costs that are rarely reflected in the economics of cultivation. The findings underline the need to look beyond domestic production capacity and examine the resilience of the entire supply chain.”Organic farming is not a free fix, but the economics work if the transition is supported. International evidence shows that organic production is 22% to 35% more profitable after accounting for price premiums, even with a yield loss of 10% to 18%. The premium needed to break even is only 5% to 7%.The real barrier is timing: costs begin on day one, while the premium only arrives after a 2-3-year certification period. India’s own trial data bears this out. An ICAR-IIFSR experiment at Modipuram found that plots using 50% to 75% organic substitution, rather than full conversion, matched the yields of fully organic plots, outperformed fully chemical plots and delivered Rs 53,200 more profit per hectare than chemical plots. Farmers do not need to go fully organic to see the benefit.
