The Coming Perfect Storm, Fertiliser Crisis, El Niño, and India’s Unfinished Agricultural Reforms
“Events, dear boy, events,” British Prime Minister Harold Macmillan had said when asked what tends to upend governments. Today, the convergence of conflict in West Asia and the arrival of El Niño may be the fatal catalyst to topple elected leaders and autocrats. What comes after this moment is fraught with uncertainty, and governments worldwide should be worried. For India, the situation is particularly acute. Global fertiliser prices have doubled in a single month. A bag of urea that costs a farmer ₹266.50 costs the Government of India ₹4,184—a subsidy of nearly ₹3,917 per bag. Combined with crude oil hovering near $100 a barrel, this is fiscally unsustainable and a political nightmare. Even in the event of a continuing West Asia conflict, India will not face an immediate fertiliser shortage crisis, as a 10-15 per cent shortfall is manageable. A slightly lower application will not reduce yields. The full force of the current supply shock will manifest in the next sowing cycle. The real lesson is that food security cannot be achieved simply by securing more fertilisers. It requires reducing their strategic importance through a bold agricultural policy. Decades of reform ideas have been recycled. The time for action is now.
The Fiscal Nightmare: Subsidies That Are Breaking the Bank
The numbers are staggering. A bag of urea (50 kg) has a market price of approximately ₹4,184. The government sells it to farmers at a subsidised rate of ₹266.50. The difference—₹3,917 per bag—is paid by the exchequer. India consumes approximately 35 million tonnes of urea annually. The subsidy bill, even before the current price spike, was over ₹1 lakh crore. With global prices doubling in a single month, that bill is set to explode.
This is not sustainable. The government has already cut excise duties on petrol and diesel to shield consumers from oil price spikes, reducing its revenue. It has hiked export duties on diesel and ATF to ensure domestic supply, reducing export earnings. It has provided subsidies for food, fertilisers, and electricity. The fiscal deficit is under pressure. Every rupee spent on fertiliser subsidy is a rupee not spent on health, education, or infrastructure.
Yet, the political cost of reducing subsidies is equally high. Farmers have come to expect cheap fertilisers. Any attempt to raise prices will be met with protests. The government is caught between fiscal prudence and political survival.
The Trust Deficit: Panic-Buying and Artificial Scarcity
On the ground, rather than just buying basal fertilisers (applied at or before planting to support early plant development), farmers are stockpiling for a full crop cycle. This is not driven by a desire to profiteer but by a pervasive fear of future scarcity—a self-fulfilling prophecy that creates artificial shortages. This panic-buying is a symptom of a deeper issue: the government has yet to bridge the trust deficit with the farming community.
After the Russian energy price shock, German households and industry lowered gas consumption by about 20 per cent. India once mirrored this discipline when it responded to Lal Bahadur Shastri’s plea to skip a meal a week during the 1965 food crisis. But today’s India is different. Bred on a diet of freebies and with a lack of institutional and political credibility, any hint of a fertiliser shortage will not trigger conservation but will trigger panic-buying.
The government recently had to clarify that farmers cannot be forced to buy nano-urea (a liquid alternative to granular urea). The very fact that such a clarification was necessary—that farmers feared coercion—is an indictment of the trust deficit. The lesson is bleak but clarifying: if the government sees reforms as a money-saving exercise, it will end up with neither savings nor reform.
The El Niño Threat: A Drought Could Break the Economy
It is too early to predict the full consequences of El Niño, though it is not too early to make informed guesses on some aspects of it. The greater danger of a drought, should it come to that, will have a devastating impact on farmers’ fragile livelihoods and decimate the economy. This would inevitably trigger an inflationary spiral and a political firestorm.
India has faced droughts before. The 2009 drought led to a sharp rise in food prices, which contributed to the Congress party’s poor performance in subsequent elections. The 2015-16 drought forced the government to provide relief to millions of farmers and contributed to rural distress. A drought combined with a fertiliser crisis—higher input costs, lower yields—would be catastrophic.
The historical parallels are canny. In 1971, Indira Gandhi helped create Bangladesh from Pakistan, a strategic triumph. But in 1973, the repercussions of the OPEC oil embargo were one of the factors that led to the imposition of the Emergency. The surge in food prices between 2007 and 2008 sparked protests and riots in about 40 countries. The 2008 financial crisis further contributed to dozens of leadership changes in the years that followed. Events, indeed.
The Recurring, Unimplemented Reforms
For decades, economists have recycled two ideas about fertiliser reforms: nutrient-based subsidies (NBS) and direct subsidy transfers paired with price deregulation. Yet, both remain non-starters.
The Nutrient-Based Subsidy (NBS) policy was introduced in 2010. It fixed a per-kilogram subsidy for each nutrient (nitrogen, phosphorus, potassium, sulphur) and allowed manufacturers to set prices. The idea was to encourage balanced fertiliser use, reducing the overuse of urea (which is nitrogen-based). But the policy was undermined by the government’s reluctance to fully deregulate urea prices. Urea remained under price control, while other fertilisers were deregulated. The result was an even greater imbalance: farmers overused urea because it was cheap, and underused other fertilisers because they were expensive.
Direct Benefit Transfer (DBT) for fertilisers was introduced in 2018. Under DBT, farmers buy fertilisers at near-market prices and receive a subsidy directly into their bank accounts. In theory, this should reduce inefficiencies, eliminate leakages, and allow prices to adjust. In practice, the government has been reluctant to raise prices to market levels, fearing political backlash. DBT has reduced the fiscal burden, but not eliminated it. The underlying problem—the gap between market price and farmer price—remains.
The Way Forward: A 50 Per Cent Price Hike with Compensation
Irrespective of how events unfold, once fertiliser prices have normalised, the government should increase the cost of urea by 50 per cent and compensate farmers by increasing the per-farmer PM-KISAN payout. Yes, there will be losers. But 85 per cent of cultivators will gain.
This is not a random proposal. The logic is sound. Currently, the subsidy is universal: every farmer, regardless of income, gets cheap urea. The wealthy farmer in Punjab gets the same subsidy as the marginal farmer in Odisha. This is regressive. A price increase, combined with targeted compensation, would reduce the fiscal burden while protecting the poor. The 85 per cent of farmers who are small and marginal would receive higher PM-KISAN payments, more than offsetting the price increase. The 15 per cent who are large and wealthy would pay more—as they should.
The government has been unable to optimise the use of fertilisers for decades. This would make it happen in the blink of an eye. The solution is not flawlessly efficient, but that is precisely the point. While farmers learn early on to reconcile with inherent inefficiencies on the farm, policymakers seek theoretical efficiency, often without a deep knowledge of what it means. The paradox of efficiency is that it cannot exist without inefficiency.
The Paradox of Efficiency: Embracing Inefficiency
The paradox of efficiency is that it cannot exist without inefficiency. This is true for food systems, which are prone to failures from unseasonal rains, floods, droughts, geopolitical choke points like Hormuz, or the cautionary tale of Sri Lanka’s overnight ban on agrochemicals. Sri Lanka banned synthetic fertilisers in 2021, hoping to become the world’s first organic farming nation. The result was a catastrophic drop in rice yields, a collapse of the tea industry, and a food crisis that contributed to the country’s economic collapse and political upheaval. The lesson is that apparent inefficiencies—like maintaining buffer stocks, diversifying supply sources, and keeping some fertiliser production capacity at home—are not flaws but features.
Like agri-inputs, the difference between optimum application and poison lies in the dose. The same principle applies to reforms. A 50 per cent price increase is a big dose. It may cause pain. But it will also force change—in farmer behaviour, in government policy, in the political economy of fertilisers. A smaller dose would be safer, but it would also be less effective. The government has been trying small doses for decades; they have not worked.
Conclusion: The Courage to Push for Change
For many today, it is easy to assume they live in unprecedented times and circumstances. Irrespective of whether the war in West Asia and the dangers of El Niño fizzle out or continue, the government should have the courage to push for change. Because for voters, the lag effect of these events may not go away.
The 2008 financial crisis led to leadership changes years later, not immediately. The 1973 oil embargo contributed to the Emergency in 1975, not 1973. The effects of current shocks will be felt in the next election cycle, not this one. That gives the government a window—a narrow window, but a window nonetheless—to act.
The time to act is now. The fertiliser subsidy is fiscally unsustainable. The trust deficit with farmers is eroding crisis response. El Niño may bring drought. The political consequences of inaction will be severe. The government should increase the price of urea by 50 per cent, compensate farmers through PM-KISAN, and break the cycle of dependency. It will be painful. It will be unpopular. But it is necessary. The alternative is to continue kicking the can down the road—until the road runs out.
Q&A: India’s Fertiliser Crisis and Agricultural Policy Reforms
Q1: What is the current cost of urea to the Government of India versus the price paid by farmers?
A1: A bag of urea costs the Government of India ₹4,184, but is sold to farmers at a subsidised rate of ₹266.50. This means the government pays a subsidy of nearly ₹3,917 per bag. India consumes approximately 35 million tonnes of urea annually, making the total subsidy bill over ₹1 lakh crore even before the current global price spike. With global fertiliser prices doubling in a single month due to the West Asia conflict, this is “fiscally unsustainable and a political nightmare.”
Q2: Why are farmers stockpiling fertilisers, and what does this indicate about the government-farmer relationship?
A2: Farmers are stockpiling fertilisers for a full crop cycle, not just buying basal fertilisers. This is “not driven by a desire to profiteer but by a pervasive fear of future scarcity—a self-fulfilling prophecy that creates artificial shortages.” The article calls this panic-buying a “symptom of a deeper issue: the government has yet to bridge the trust deficit with the farming community.” The government recently had to announce that “farmers cannot be forced to buy nano-urea”—the very fact that such a clarification was necessary (that farmers feared coercion) is “an indictment of the trust deficit.” The article notes that after the Russian energy price shock, German households reduced gas consumption by 20 per cent, and India responded to Lal Bahadur Shastri’s plea to skip a meal a week during the 1965 crisis. But today’s India, “bred on a diet of freebies and with a lack of institutional and political credibility, any hint of a fertiliser shortage will not trigger conservation but will trigger panic-buying.”
Q3: What historical parallels does the article draw to illustrate how external shocks can topple governments?
A3: The article cites several historical examples:
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1971: Indira Gandhi’s strategic triumph (helping create Bangladesh) was followed by the 1973 OPEC oil embargo, which was “one of the factors that led to the imposition of the Emergency” in 1975.
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2007-2008: The surge in food prices “sparked protests and riots in about 40 countries.”
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2008 financial crisis: “Contributed to dozens of leadership changes in the years that followed.”
The article quotes Harold Macmillan: “Events, dear boy, events” — meaning external events, not just policy failures, tend to upend governments. The convergence of the West Asia conflict and El Niño may be the “fatal catalyst.”
Q4: What reform has the article recommended, and why would it benefit 85 per cent of cultivators?
A4: The article recommends that “once fertiliser prices have normalised, the Government of India should increase cost of urea by 50 per cent and compensate farmers by increasing per-farmer PM-KISAN payout.” Yes, there will be losers, but “85 per cent of cultivators will gain.” The logic is that currently the subsidy is universal—every farmer, regardless of income, gets cheap urea. A 50 per cent price increase, combined with targeted compensation through PM-KISAN, would reduce the fiscal burden while protecting the poor. The 85 per cent of farmers who are small and marginal would receive higher PM-KISAN payments more than offsetting the price increase. The 15 per cent who are large and wealthy would pay more—”as they should.” The article argues that the government has been “unable to optimise the use of fertilisers for decades” and that this would “make it happen in the blink of an eye.”
Q5: What is the “paradox of efficiency” in food systems, and what lesson does Sri Lanka offer?
A5: The “paradox of efficiency” is that “it cannot exist without inefficiency.” Food systems are prone to failures from unseasonal rains, floods, droughts, geopolitical choke points like Hormuz, or policy mistakes. The article cites Sri Lanka’s overnight ban on synthetic fertilisers in 2021: the country aimed to become the world’s first organic farming nation, but the result was a “catastrophic drop in rice yields, a collapse of the tea industry, and a food crisis that contributed to the country’s economic collapse and political upheaval.” The lesson is that “apparent inefficiencies—like maintaining buffer stocks, diversifying supply sources, and keeping some fertiliser production capacity at home—are not flaws but features.” Like agri-inputs, “the difference between optimum application and poison lies in the dose.” One can “kill the very system it aims to improve.” The article concludes that the government should have the “courage to push for change” because the “lag effect of these events may not go away.” A 50 per cent price increase will be “painful” and “unpopular,” but “it is necessary.” The alternative is to “continue kicking the can down the road—until the road runs out.”
