New Delhi: The department of fertilizers has sought a 100% increase in fertilizer subsidy to ₹3.5 trillion for FY27 from the finance ministry to offset mounting losses of manufacturers due to subsidized sales even their costs soar due to the West Asia war-induced disruptions, according to two people aware of the development.
India, world's second-largest fertilizer consumer and the largest importer of diammonium phosphate (DAP) and urea, aims to keep retail prices of key farm nutrients, particularly urea, stable for farmers amid the global surge in prices of key inputs, including crude oil that has witnessed a surge.
The government had budgeted ₹1.77 trillion of fertilizer subsidy for the current fiscal year, but the math has been upset as prices of fertilizers have now soared from ₹2,900 per bag to ₹4,300. Fertilizer subsidy remains one of the largest components of government support to the farm sector, with the bill having crossed ₹2.17 trillion in FY26.
Fuel is another key area of fiscal stress. The government has already given state-run oil marketing companies (OMCs) a financial support of around ₹1.23 trillion for their losses during the first 78 days of the war that started on 28 February 2026, and shield consumers from the burden of rising crude oil prices, said the people cited above. “It includes excise duty cut on petrol and diesel,” said one of the two people cited above, requesting anonymity.
The people in the know said the OMCs' overall daily under-recovery, or the difference between the global market rate and the local selling price of the fuel, is around ₹700 crore, on liquefied petroleum gas (LPG) sales.
The subsidy outgo on fuel and fertilizer would be assessed again in October to see if any additional requirements are there through supplementary demands for grant, the people said, adding that no fiscal measures are required as of now.
Fiscal math
They said the additional subsidy outgo is unlikely to have any immediate fiscal impact, as the government had made a provision for such contingencies in the FY27 Budget presented in February. Despite the external stress factors, the government is not looking at bringing any supplementary demands for grants in the upcoming monsoon session of Parliament, said the people cited above.
“The FY27 Budget had taken into cognizance the uncertainties in the global economy around tariffs, and the government does not immediately need to account for additional borrowing or bring in supplementary demands for grants in the upcoming monsoon session,” said one of the people.
“The Budget had earmarked ₹1 trillion under the proposed Economic Stabilisation Fund to address unforeseen economic shocks," the person said. "Besides this, the government has established a domestic maritime insurance pool backed by a sovereign guarantee of ₹12,980 crore and rolled out ECLGS 5.0 to support affected sectors.”
Elaborating on fiscal health, the people said government's disinvestment target of ₹80,000 crore for FY27 will be surpassed, despite the delay of IDBI Bank's stake sale process. “The IDBI bank disinvestment will happen; there is no doubt about it," said the person cited above “We are hoping to surpass this year's disinvestment target.”
India plans to monetize assets worth of ₹16.7 trillion under the national monetization pipeline 2.0 during FY26-30.
Some experts see the higher subsidy outgo due to the war putting pressure on India's fiscal health.
"The additional fertilizer subsidy required amid the Middle East crisis will add to the government's fiscal burden, especially at a time when it is already absorbing part of the energy price shock through excise duty cuts on fuels," said Madhavi Arora, chief economist at Emkay Global Financial Services. “Higher subsidy outgo, coupled with lower tax collections from fuel excise, could put added pressure on fiscal consolidation efforts if elevated energy prices persist.”
Growth optimism
The people cited earlier in the story exuded confidence on India's growth prospects and said the economy was not under pressure despite the external challenges. "Domestic consumption is making up for it,” said one of the persons.
The optimism comes in the wake of robust economic data. The Indian economy grew 7.8% during the quarter ended March, taking the FY26 full year's growth to 7.7%, provisional government data showed on Friday. The economy had expanded 7.1% in FY25.
The people said latest economic data available till May 2026 suggests that India's growth has maintained the momentum that was seen in the March quarter.
They said the government is monitoring weather-related risks, and will assess the impact of the El Niño phenomenon on agriculture and rural demand during July-August.