Disruption Carries a Reminder, Policy Reforms in India’s Fertiliser Sector Are Overdue
As the Gulf War Exposes Vulnerabilities in Energy and Fertiliser Supplies, the Case for Strategic Reform Becomes Unanswerable
There is a famous saying: “Never let a serious crisis go to waste.” India’s landmark economic reforms in 1991 were the result of a balance-of-payments crisis that forced the nation to rethink its economic strategy. Today, the country sits on comfortable foreign exchange reserves of over $728 billion, providing a good cushion to absorb external shocks. But the ongoing war in the Gulf between Iran and the US-Israel axis has exposed vulnerabilities of a different kind—vulnerabilities in energy and fertiliser supplies that strike at the heart of India’s food security.
The situation calls for strategic thinking and reforms in the fertiliser sector to ensure that the nation’s ability to feed itself is not held hostage to geopolitical disruptions beyond its control.
The Nature of the Disruption
The escalating war is threatening a major disruption in energy and fertiliser supplies. The risks extend to vital maritime choke-points such as the Strait of Hormuz, through which a substantial share of global oil and gas trade passes. Any disruption in this corridor quickly ripples across commodity markets. Oil and gas, and by extension fertilisers—especially urea—have already felt the tremors.
For India, crude oil is the largest import item, with about 88 per cent of its requirement being met through imports. In the financial year 2024-25, India imported approximately 243 million tonnes of crude oil worth $137 billion, nearly half of which was sourced from the Middle East via the Strait of Hormuz. Just before tensions escalated in late February, Brent crude averaged $66 per barrel, but within two weeks, prices spiked to around $120 per barrel before settling near $100 on March 13.
India’s exposure extends to cooking gas as well. The country imports about two-thirds of its LPG—31.3 million tonnes in FY25—much of which moves through the same corridor. As supplies tightened and import costs rose, domestic LPG prices were raised by Rs 60 per cylinder, a direct hit to household budgets.
Liquefied Natural Gas imports have also been hit. In FY25, India imported about 27 million tonnes of LNG—roughly half of its requirement—worth around $15 billion, with Qatar accounting for nearly half of these imports. The disruptions across the Middle East pushed Asian spot LNG prices from around $10 per mmBtu to $24-25 per mmBtu within two weeks. By invoking the Essential Commodities Act, the government has prioritised gas allocation for households and transport, leaving fertiliser producers with only 70 per cent of their usual six-month consumption. This is likely to adversely hit the domestic production of urea.
The Fertiliser Vulnerability
This matters because India’s food security hinges heavily on fertiliser security, and urea production is closely tied to global energy markets. India consumes about 40 million tonnes of urea annually, but domestic output has stagnated at around 30 million tonnes, forcing rising imports that could exceed 10 million tonnes in FY26—nearly double the 5.6 million tonnes imported in FY25. Over 60 per cent of these imports come from the Persian Gulf region.
Following the escalation in the war, global urea prices surged from about $484 per tonne to $652 per tonne within 10 days—a 35 per cent jump—and may rise further as uncertainty persists.
The dependence runs deeper. Natural gas, the key feedstock for urea, is largely imported, supplying about 85 per cent of the gas used in domestic production. Once both direct urea imports and imported gas feedstocks are considered, India’s effective import dependence in urea goes up to about 55 per cent.
Dependence is similarly high for other fertiliser inputs. Over 80 per cent of ammonia and sulphur imports come from the Gulf, while around 40 per cent of DAP imports are sourced from Saudi Arabia. India also relies almost entirely on imports for potassic fertilisers (MOP) and about 90-95 per cent for phosphate raw materials (rock and acid). Once the import content of intermediates and feedstocks is considered, India depends on global fertiliser supply chains for about 68-70 per cent of its requirements in FY25, leaving the sector—and India’s food security—highly vulnerable to geopolitical disruptions, price volatility, and supply shocks.
The Fiscal Implications
India also exports agri-products to the Middle East—$11.8 billion in FY25—which are under strain. But the biggest worry is about imports of oil, gas, and fertilisers. If this crisis continues beyond a month or so, the country’s fertiliser subsidy bill in FY27 could cross Rs 2 lakh crore, against a budgeted figure of Rs 1.7 lakh crore.
This is not a minor fiscal adjustment. An additional Rs 30,000 crore or more in subsidy spending would have ripple effects throughout the economy—crowding out other expenditures, adding to the fiscal deficit, and potentially fuelling inflation. The vulnerability of the fertiliser sector is not just a supply chain issue; it is a macroeconomic issue.
The Case for Reform
This situation calls for immediate reforms in the fertiliser sector. The authors, Ashok Gulati and Ritika Juneja of ICRIER, outline a three-pronged approach.
First, diversify imports beyond the Gulf countries. India’s concentration of fertiliser imports from a single volatile region is a strategic vulnerability that must be addressed. Complementing this, India should expand overseas investments in fertiliser minerals and production assets while accelerating domestic exploration of fertiliser resources. Establishing a dedicated fertiliser investment fund of, say, $1 billion, could enable Indian companies to acquire equity stakes in global mining projects and finance domestic exploration. This would shift India from reactive import dependence to investment-led supply security.
The logic is straightforward: owning a share of production in multiple countries reduces the risk that any single disruption will cripple supplies. It also gives India a seat at the table when production and pricing decisions are made. Over time, such investments could transform India from a price-taker to a price-maker in global fertiliser markets.
Second, policy reforms in fertiliser pricing and subsidies are essential and overdue. Direct transfer of fertiliser subsidies to farmers and gradual deregulation of market prices would encourage balanced use of N, P, and K nutrients, while reducing fiscal pressures. It would also plug leakages—estimated at about 20 per cent, they are quite substantial.
The current system of subsidising fertilisers at the point of manufacture or import creates multiple distortions. It encourages overuse of some nutrients and underuse of others, degrading soil quality over time. It creates opportunities for diversion and smuggling. It insulates farmers from the true cost of inputs, dampening incentives for efficiency.
Direct benefit transfers—putting money into farmers’ accounts and allowing them to purchase fertilisers at market prices—would address these distortions. Farmers would have incentives to use fertilisers efficiently. Competition would drive down prices. The subsidy would reach its intended beneficiaries rather than being siphoned off along the supply chain.
If such reforms appear too ambitious in the short run, an alternative would be to put quantitative restrictions on sales based on farm size, cropping patterns, and nutrient doses recommended by state agriculture universities. With the government already developing AgriStack—a digital platform for farmer data—implementing such targeted allocation mechanisms seems feasible.
This approach would not address all the distortions of the current system, but it would at least ensure that scarce fertilisers are directed to where they are most needed. In a crisis, such targeting could make the difference between adequate supplies and shortages.
Third, if neither of these is possible, then at least bring urea under the Nutrient-Based Subsidy (NBS) framework. Currently, urea is subsidised at a flat rate, while other fertilisers (phosphatic and potassic) are subsidised under the NBS, which links subsidy amounts to nutrient content. This asymmetry has created a severe imbalance in fertiliser use, with farmers over-applying urea because it is cheap, while under-applying other nutrients that are relatively more expensive.
Bringing urea under the NBS framework would align its price with other fertilisers and promote more balanced nutrient application. It would not solve all problems, but it would address one of the most glaring distortions in current policy.
The Political Economy of Reform
The authors pose a pointed question: “If Prime Minister Narendra Modi can convert this crisis into an opportunity to reform the fertiliser sector, it will bring rich rewards. But will he bite the bullet?”
This is the crux of the matter. Fertiliser subsidies are politically sensitive. Farmers have come to expect cheap urea, and any attempt to raise prices—even if accompanied by direct cash transfers that leave them better off overall—would face intense opposition. The political risks are real.
But the risks of inaction are also real. The current crisis is a warning. If India does not diversify its sources, if it does not reform its subsidy regime, if it does not build strategic reserves and overseas investments, it will remain vulnerable to every geopolitical shock in the Gulf. The next crisis may be worse, and the fiscal costs may be even higher.
Reform is never easy. But as the 1991 experience showed, crisis can create the political space for change. The question is whether this crisis will be used or wasted.
Conclusion: From Vulnerability to Resilience
India’s food security depends on fertiliser security, and fertiliser security depends on imports that are dangerously concentrated in a volatile region. This is a structural vulnerability that no amount of foreign exchange reserves can fully cushion.
The path forward requires action on two fronts: diversify sources of supply through overseas investment and domestic exploration; and reform the domestic fertiliser sector to reduce distortions, improve efficiency, and build resilience.
The current crisis is a reminder that vulnerabilities ignored do not disappear—they accumulate until they become catastrophes. India has the opportunity to act now, while reserves are comfortable and the economy is strong. Whether it will seize that opportunity is a question of political will.
The rewards of reform are rich: greater food security, reduced fiscal pressure, more sustainable agriculture, and a stronger strategic position in a turbulent world. The question is whether the bullet will be bitten.
Q&A: Unpacking India’s Fertiliser Vulnerability
Q1: How dependent is India on fertiliser imports, and where do they come from?
A: India’s dependence on fertiliser imports is extensive and dangerously concentrated. Once the import content of intermediates and feedstocks is considered, India depends on global supply chains for about 68-70 per cent of its fertiliser requirements. Over 60 per cent of urea imports come from the Persian Gulf region. Over 80 per cent of ammonia and sulphur imports come from the Gulf, while around 40 per cent of DAP imports are sourced from Saudi Arabia. India also relies almost entirely on imports for potassic fertilisers (MOP) and about 90-95 per cent for phosphate raw materials.
Q2: How has the Gulf war affected fertiliser prices and supplies?
A: The war has triggered severe disruptions. Global urea prices surged from about $484 per tonne to $652 per tonne within 10 days—a 35 per cent jump. Natural gas supplies to fertiliser producers have been cut to 70 per cent of normal levels due to prioritisation of household and transport needs under the Essential Commodities Act. LNG spot prices in Asia jumped from $10 to $24-25 per mmBtu. If the crisis continues, India’s fertiliser subsidy bill in FY27 could cross Rs 2 lakh crore, well above the budgeted Rs 1.7 lakh crore.
Q3: What is the link between energy imports and fertiliser production?
A: Natural gas is the key feedstock for urea production, and about 85 per cent of the gas used in domestic fertiliser production is imported. Once both direct urea imports and imported gas feedstocks are considered, India’s effective import dependence in urea goes up to about 55 per cent. This means that disruptions in global energy markets directly affect domestic fertiliser production, not just imports of finished fertilisers.
Q4: What three reforms do Gulati and Juneja propose?
A: First, diversify imports beyond Gulf countries through overseas investments in fertiliser minerals and production assets, supported by a $1 billion dedicated investment fund. Second, reform fertiliser pricing through direct benefit transfers to farmers and gradual deregulation, or alternatively impose quantitative restrictions based on farm size and cropping patterns using the AgriStack platform. Third, bring urea under the Nutrient-Based Subsidy (NBS) framework to align its price with other fertilisers and promote balanced nutrient application.
Q5: What are the political obstacles to fertiliser sector reform?
A: Fertiliser subsidies are politically sensitive because farmers have come to expect cheap urea. Any attempt to raise prices—even if accompanied by direct cash transfers that leave farmers better off overall—would face intense opposition. The political risks are substantial. However, as the 1991 economic reforms demonstrated, crisis can create the political space for change. The question is whether the current crisis will be used as an opportunity for reform or allowed to pass without action.
