The Fertiliser Industry and Subsidy in India Explained

The fertiliser industry in India is the sector that manufactures, imports and distributes plant nutrients such as urea, di-ammonium phosphate (DAP), muriate of potash (MOP) and NPK complex fertilisers, and it is supported by one of the largest subsidy programmes in the Union Budget. India is among the largest consumers of fertilisers in the world, and the sector is central to food security because chemical nutrients have been a pillar of crop yields since the Green Revolution of the 1960s.

The industry is unusual in how tightly it is controlled by the state: the Government of India fixes the maximum retail price of urea, administers a separate nutrient-based subsidy for phosphatic and potassic fertilisers, and monitors movement of stock across the country. This explainer describes the structure of the sector, its main producers, its dependence on imports, how the subsidy works, and the policy push towards nano fertilisers and self-reliance. It was last reviewed on 8 October 2026.

Quick Facts

Key Takeaways

• The fertiliser industry in India produces three primary nutrient groups, nitrogen (urea), phosphorus (DAP, SSP) and potassium (MOP), plus blended NPK complexes.
• Urea is the most widely used fertiliser in India, and its maximum retail price is fixed by the Government of India, so manufacturers are paid a subsidy for the gap between production cost and the controlled price.
• Phosphatic and potassic fertilisers are covered by the Nutrient Based Subsidy (NBS) scheme, introduced from 1 April 2010, which pays a per-kilogram subsidy on each nutrient rather than a fixed price per product.
• India has no commercially significant potash reserves, so potash is imported in full, and the country also relies heavily on imported rock phosphate, phosphoric acid and finished DAP.
• Since 2015, all subsidised urea sold in India has been neem-coated to curb diversion to industry and slow nitrogen loss in the soil.
• The fertiliser subsidy is consistently one of the two or three largest subsidies in the Union Budget, alongside the food subsidy.

What is the fertiliser industry in India and why does it matter?

The fertiliser industry in India is the set of public, cooperative and private companies that produce or import plant nutrients and sell them to farmers through a nationwide distribution chain. It matters because agriculture still employs a large share of the Indian workforce, and the productivity of the major cereal crops depends strongly on adequate nutrient supply.

Before the 1950s, Indian farmers relied mainly on organic manure, and chemical fertiliser use was very low. The shift began with state-led factories in the early decades after independence and accelerated with the introduction of high-yielding varieties of wheat and rice in the late 1960s. Those varieties responded sharply to nitrogen, phosphorus and potassium, and demand rose steadily as irrigation expanded.

Today the sector is a vital link between industry and farming. It consumes large volumes of natural gas, coal, sulphur and imported raw materials, and it supplies a product whose price directly affects farm incomes, food inflation and the fiscal deficit. Policy decisions on fertilisers therefore sit at the intersection of agriculture, energy, trade and public finance.

What are the main types of fertilisers used in India?

The main types of fertilisers used in India are straight nitrogenous fertilisers such as urea, phosphatic fertilisers such as DAP and single super phosphate (SSP), potassic fertilisers such as MOP, and complex fertilisers that combine nutrients in a single granule. Each group supplies one or more of the three primary macronutrients, nitrogen (N), phosphorus (P) and potassium (K).

Agronomists recommend a balanced ratio of nitrogen, phosphorus and potassium, often cited as roughly 4:2:1 for Indian conditions. In practice, the controlled low price of urea has pushed farmers to apply more nitrogen than the soil needs, producing a skew towards nitrogen in many regions.

How does India produce fertilisers?

India produces fertilisers through chemical plants that convert natural gas, imported ammonia, phosphoric acid and mineral inputs into finished nutrient products. The manufacturing process differs by product.

Urea

Urea is made by reacting ammonia with carbon dioxide at high pressure and temperature. Ammonia itself is produced from hydrogen and nitrogen, and the hydrogen is obtained mostly from natural gas or, in older plants, from naphtha or coal. Natural gas therefore accounts for most of the cost of urea production, which makes the industry sensitive to gas supply and pricing. Most domestic plants run on pooled natural gas drawn from domestic fields and imported liquefied natural gas (LNG).

Phosphatic fertilisers

DAP and complex fertilisers are made by reacting phosphoric acid with ammonia. Phosphoric acid in turn is made from rock phosphate and sulphuric acid. India has limited deposits of rock phosphate of suitable grade, so plants rely heavily on imported rock, imported phosphoric acid and imported sulphur or ammonia. SSP, a simpler product, is made by treating rock phosphate with sulphuric acid and is produced by many smaller units.

Potassic fertilisers

India does not manufacture MOP from domestic mines in meaningful volumes. The country imports potash, which is then sold directly or used in NPK complexes by blending and granulation plants.

Who are the major producers of fertilisers in India?

The major producers of fertilisers in India are public sector undertakings, farmer-owned cooperatives and private companies. The three groups compete in the market but operate within the same government price and subsidy framework.

• Cooperatives: The Indian Farmers Fertiliser Cooperative Limited (IFFCO), founded in 1967 and owned by member cooperative societies, is among the largest fertiliser producers in the country, with plants in Gujarat and Uttar Pradesh and a large presence in phosphatic and nano fertilisers. The Krishak Bharati Cooperative Limited (KRIBHCO), with a major urea plant at Hazira in Gujarat, is the other cooperative major.
• Public sector: Rashtriya Chemicals and Fertilizers (RCF), National Fertilizers Limited (NFL), Fertilisers and Chemicals Travancore (FACT, established in 1943), Brahmaputra Valley Fertilizer Corporation Limited and Madras Fertilizers have been important state-owned producers. The revived units at Gorakhpur, Barauni and Sindri were brought under Hindustan Urvarak and Rasayan Limited (HURL), a joint venture of public sector companies.
• Private sector: Companies such as Chambal Fertilisers, Coromandel International, Tata Chemicals, Zuari, Nagarjuna Fertilizers, Paradeep Phosphates, Gujarat State Fertilizers and Chemicals (GSFC) and Deepak Fertilisers produce urea, DAP, complexes and specialty nutrients.

The industry has a concentration in the Gangetic plain and western India, where natural gas pipelines, ports and demand converge. Gas pipeline connectivity to eastern India has been extended in recent years to support revived plants there.

How dependent is India on fertiliser imports?

India is heavily dependent on imports for phosphatic and potassic fertilisers and their raw materials, and partially dependent for urea. The dependence is structural, rooted in the country’s geology and in its gas resources.

The main import patterns are:

• Potash: All MOP is imported because India has no commercially viable potash deposits. Major suppliers have included Canada, Russia, Belarus and Jordan, and long-term contracts are negotiated by Indian importers.
• Phosphates: India imports rock phosphate, phosphoric acid and a large share of finished DAP, from countries such as Morocco, Saudi Arabia and China, among others.
• Urea: Domestic output covers most of the demand but imports fill the gap through government-designated agencies. Plants also depend on imported LNG for feedstock.
• Intermediates: Sulphur, ammonia and other inputs are also imported.

This exposure means that international price spikes, shipping disruptions, export restrictions in producing countries and geopolitical events can raise the cost of fertiliser abruptly. The government responds by negotiating long-term supply arrangements, signing agreements with supplier countries, acquiring overseas mineral assets through joint ventures, and raising the subsidy when global prices climb.

What is the fertiliser subsidy in India?

The fertiliser subsidy in India is the financial support paid by the Government of India to fertiliser manufacturers and importers so that farmers can buy fertilisers at prices below the actual cost of production or import. It is funded through the Union Budget and administered by the Department of Fertilizers.

The subsidy exists because farm input prices are politically and economically sensitive. Left to the market, fertiliser prices would move with global commodity cycles, increasing the cost of cultivation. By subsidising the gap, the government keeps farm-gate prices relatively stable. The subsidy is one of the largest in the Union Budget, typically ranking behind or alongside the food subsidy, and its size varies from year to year with global prices, exchange rates and gas costs.

The subsidy is paid to the industry rather than directly to farmers in cash. Farmers experience it as a lower price at the retail counter. A long-standing policy debate is whether it should be converted into direct cash transfers to farmers instead, which is discussed below.

How do the urea and Nutrient Based Subsidy schemes differ?

The urea subsidy and the Nutrient Based Subsidy (NBS) differ in that urea has a government-fixed maximum retail price, while phosphatic and potassic fertilisers have a per-nutrient subsidy rate and an open, market-determined retail price. The two regimes were designed to meet different objectives.

The Retention Price Scheme, in place from 1977 for urea, reimbursed each plant according to its own cost plus an assured return. It was replaced in stages by group-based pricing and then by the New Urea Policy of 2015, which set energy-efficiency norms for plants and aimed to raise domestic production and cut gas consumption per tonne.

For P&K products, the government shifted to NBS in 2010 to rationalise consumption and encourage balanced use of nutrients. However, because DAP prices have often been held broadly stable by informal government advisories, even NBS products have not always followed international price swings fully, and the government has sometimes granted additional special subsidies on DAP.

How does the Direct Benefit Transfer system work in fertilisers?

The Direct Benefit Transfer (DBT) system in fertilisers links the release of subsidy to verified retail sales of fertiliser to actual buyers. Since 2018, retailers record each sale on a point-of-sale (PoS) device after authenticating the buyer, usually through Aadhaar, and the subsidy is paid to the manufacturer or importer only after the sale is registered.

This arrangement is different from the cash-to-farmer DBT used in schemes such as LPG subsidy. Farmers continue to pay the subsidised price at the shop, and the company receives the subsidy from the Department of Fertilizers on the basis of the PoS data. The system is implemented through the integrated Fertilizer Monitoring System (iFMS) and related portals.

The main benefits are:

• Better tracking of stock from factory or port to the retailer.
• Reduced diversion of subsidised stock to non-agricultural uses.
• Data on who buys fertiliser and how much, allowing quantity limits and monitoring against land records.
• Faster and more transparent settlement of subsidy claims.

Challenges include patchy connectivity in remote areas, the burden on small retailers, and the difficulty of verifying purchases by tenant farmers who lack formal land records.

What is neem-coated urea and why was it introduced?

Neem-coated urea is ordinary urea granules coated with neem oil, and it was made mandatory for all subsidised urea in 2015 to curb diversion to industrial use and to improve nitrogen efficiency. Before the coating requirement, subsidised urea was often diverted to chemical and resin industries and illegally moved across borders, because the controlled price was far below the industrial price.

Neem oil acts as a mild nitrification inhibitor, slowing the conversion of urea into forms that the soil loses quickly. The coating also makes the urea unsuitable for most industrial uses, which discouraged diversion. Following the requirement, reported shortages and black-marketing of urea eased in many regions, and the government also moved to sell urea in 45 kilogram bags instead of 50 kilogram bags under revised packaging norms.

Researchers continue to debate how much nitrogen-saving the coating delivers in field conditions, but its role in reducing diversion is widely acknowledged.

What are nano fertilisers and why is the government promoting them?

Nano fertilisers are liquid formulations in which nutrients are delivered as nano-scale particles, and the government promotes them to cut conventional fertiliser consumption and imports. Nano urea, developed by IFFCO and approved for commercial use in 2021, is the best-known example, followed by nano DAP.

The reasoning is straightforward. A single small bottle of liquid nano urea is claimed by its manufacturer to substitute for a bag of conventional urea, lowering transport costs and the subsidy bill, and reducing nutrient runoff. The product is sprayed on the leaves rather than applied to the soil.

The technology remains under evaluation. Field trials and independent studies have shown mixed results on yield equivalence, and farmers’ adoption has depended on awareness, price and supply. The government has expanded nano fertiliser plants and encouraged their use alongside conventional products, rather than as full replacements, while research on efficacy continues.

What is the policy push for self-reliance and balanced fertiliser use?

The policy push for self-reliance and balanced fertiliser use consists of reviving closed urea plants, expanding domestic phosphate and complex capacity, securing overseas supplies, and promoting soil-health-based application. The overall aim is to reduce the import bill and the fiscal burden while sustaining crop yields.

Key elements include:

• Revival of urea units: Closed plants at Gorakhpur, Sindri, Barauni, Ramagundam and Talcher have been revived or are being revived using coal gasification or pipeline gas, with the stated goal of reducing urea imports.
• Soil Health Card scheme (2015): Farmers receive recommendations on nutrient doses based on soil tests.
• One Nation One Fertiliser: Since 2022, subsidised fertilisers are sold under a uniform “Bharat” brand with a common design, replacing company branding.
• PM-PRANAM: A scheme announced in 2023 to incentivise States to reduce chemical fertiliser use and promote alternatives.
• Organic and natural farming: Programmes such as the Paramparagat Krishi Vikas Yojana and the National Mission on Natural Farming promote organic inputs and natural farming practices.
• Overseas assets: Indian public and cooperative companies have formed joint ventures to secure phosphate and potash supply from abroad.

Critics of heavy subsidy argue that low urea prices distort nutrient use, harm soil health and groundwater, and favour irrigated, wheat- and rice-growing regions. Supporters respond that stable prices protect small farmers and food production. Reform proposals, such as moving to direct cash transfers per hectare, have been discussed for years but raise concerns about land records, tenant farmers and implementation.

Bottom Line

The fertiliser industry in India is a state-shaped sector in which controlled prices, a large subsidy and heavy import dependence on potash and phosphate define the economics. Policy is moving along three tracks: tighter targeting through DBT and neem-coating, domestic capacity and nano innovation for self-reliance, and soil-health-based balanced use. How quickly these changes reduce the subsidy burden while protecting farmer incomes remains a central question for Indian agriculture.

Frequently Asked Questions

What is the fertiliser industry in India?

The fertiliser industry in India is the sector of public, cooperative and private companies that make or import nutrients such as urea, DAP, MOP and NPK complexes for Indian farmers. It operates under the Department of Fertilizers and is regulated through the Fertiliser (Control) Order, 1985. The sector is closely tied to food security and to the Union Budget through the fertiliser subsidy.

Which is the most used fertiliser in India?

Urea is the most used fertiliser in India, accounting for the largest share of nutrient consumption. Its widespread use stems from its high nitrogen content, wide availability and low controlled retail price. This has contributed to an imbalance in which nitrogen is applied far more than phosphorus and potassium.

Why does India import fertilisers?

India imports fertilisers because the country lacks commercially viable potash deposits and has limited high-grade rock phosphate. All potash is imported, and large volumes of phosphate raw materials and DAP also come from abroad. Urea is largely produced domestically, but imports and imported LNG still fill supply gaps.

How does the fertiliser subsidy work in India?

The fertiliser subsidy works by paying manufacturers and importers the difference between the cost of supply and the price farmers pay. For urea, the retail price is fixed by the government and the subsidy covers the gap. For phosphatic and potassic fertilisers, a per-kilogram Nutrient Based Subsidy is paid, and since 2018 payments are linked to retail sales recorded on point-of-sale devices.

What is the difference between urea subsidy and NBS?

The urea subsidy covers a product with a fixed maximum retail price, while the Nutrient Based Subsidy covers phosphatic and potassic fertilisers with market-linked retail prices. Under NBS, the government sets subsidy rates per kilogram of each nutrient, reviewed seasonally. NBS was introduced on 1 April 2010 to encourage balanced fertiliser use.

What is nano urea?

Nano urea is a liquid fertiliser containing nitrogen in nano-scale particles that is sprayed on crop leaves. It was developed by IFFCO and approved for commercial use in 2021. The government promotes it to reduce conventional urea use and imports, although its effectiveness is still being evaluated through field studies.

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