Why India should keep its fertiliser subsidies

Given India feeds close to a fifth of the world’s population and is a major food exporter, cutting subsidies could destabilise international food markets. Rather than removing subsidies abruptly, India should maintain support while pursuing incremental reforms to optimise yields and reduce leakage.

At first glance, India’s debates on whether to reduce or raise its chemical fertiliser subsidies may appear to be a purely domestic issue. But any action by India will likely have global food security ramifications amid conflicts in the Middle East, which have effectively closed the Strait of Hormuz to trade and shut down fertiliser plants in the region. By April 2026, global urea fertiliser prices had risen by around 50 per cent from pre-war levels.

Debates on India’s fertiliser subsidies need to be broadened to include an international perspective, in light of the country’s potentially critical stabilising role in global food security. India feeds close to a fifth of the global population within its borders. But it is also the world’s eighth-largest food exporter, accounting for 2.3 per cent of global food exports, much of them staples such as rice and wheat.

India’s global role is intertwined with its domestic role of providing food security. Only after ensuring sufficient supplies of affordable food for domestic consumption can surplus food be exported into the global food trade system.

The 2007–08 Global Food Price Crisis showed that India’s ability to play its global role hinges on its domestic food security situation. When droughts damaged India’s 2006–07 wheat harvests, it was forced to import 6.7 million tonnes of wheat. The government soon realised grain imports were not a financially viable option given its commitment to provide subsidised grain to 35 million households under the Targeted Public Distribution System. Payments for imports added to the fiscal burden at a time when interest payments on public debt already accounted for approximately 5.3 per cent of GDP.

Given the unsustainability of imports, India banned wheat exports in 2007 and subsequently restricted rice exports. These bans redirected grains intended for export towards domestic markets, allowing India to meet grain stockpile targets while cutting the public distribution system’s fiscal burden. But for the rest of the world, these actions set off a chain of events that culminated in the food price crisis.

As rice prices rose following India’s restrictions, Thailand and Vietnam urged traders to hold onto their rice stocks in anticipation of higher prices later. The Philippines, then a large rice importer, placed substantial rice tenders at more than double market prices, hoping to secure rice imports before further price escalation. Amid such hoarding, rice prices peaked at triple their normal levels.

Fertiliser subsidies are critical if India’s agricultural sector is to continue producing enough for domestic consumption and export. One longitudinal study found that fertiliser use accounted for 20 per cent of India’s yield growth from 1981 to 2023, even after controlling for irrigation and rainfall.

Another study that surveyed over 45,000 farming households estimated that agricultural output could fall by 11 per cent if fertiliser subsidies were withdrawn. Fertilisers account for 20 per cent of farmers’ total input expenses. Subsidy removal would lead farmers to reduce fertiliser application. These findings are particularly important for rice, which uses most of India’s fertilisers. Among India’s 10 largest rice-producing states, West Bengal, Odisha and Andhra Pradesh would be hardest hit if subsidies were cut.

Some argue that reducing India’s fertiliser subsidies could help cut state fiscal deficits and reduce government debt, which accounts for 81 per cent of GDP, with interest payments amounting to 5.1 per cent annually. Resources could then be diverted to public infrastructure and developing modern industries beyond agriculture. Others suggest that the window for policy change opens during times of crisis.

India may be tempted to leverage rising fertiliser prices to push for a transition to organic alternatives such as manure. But Sri Lanka’s attempt to do so proved catastrophic — 44 per cent of farmers saw harvests decline, food price inflation exceeded 50 per cent and 90 per cent of families reduced consumption. Its ruling government was later overthrown.

Despite India’s longstanding need for fiscal reform, abruptly removing fertiliser subsidies would be counterproductive. Subsidy removal would have broader impacts on global rice supplies, since India is the top rice producer — 152 million tonnes in 2025–26. Applying the earlier finding of an 11 per cent output reduction from subsidy withdrawal, India could see a 16.7 million-tonne reduction in rice supply — more than the total production of the Philippines, the world’s largest rice importer.

The Middle East war cannot be seen as a one-off event amid a broader trend of instability in global politics, including the COVID-19 pandemic, the Russia–Ukraine war and the ongoing tariff wars. Subsidies may even need to be increased as fertiliser prices rise.

A few incremental approaches could be more useful, such as optimising yields through small-scale pilot experiments with different chemical compositions, combinations of organic and chemical fertilisers, and application timings. Given India’s fiscal constraints, it could also explore reforms to remove subsidy leakage through satellite technologies that track recipients’ actual fertiliser use, improve transparency in fertiliser producers’ stocks and diversify sources of fertilisers and natural gas for fertiliser production.

Maintaining fertiliser subsidies while pursuing careful reform would help India remain an anchor of stability in global food markets.