New Delhi: India's fertilizer subsidy bill is likely to increase in the current and next fiscal years, as tensions in the Gulf region threaten to drive up natural gas prices and freight costs, industry officials and analysts said.
Although the government makes a provisional estimate of the fertilizer subsidy at the start of the financial year—based on sowing patterns, irrigated area and historical demand—it carries an implicit obligation to enhance the allocation if unforeseen developments arise.
Currently, the fertilizer subsidy is projected at ₹1.71 trillion for the next financial year, slightly lower compared to the revised estimate of ₹1.86 trillion for the ongoing 2025-26 fiscal (FY26).
"If the crisis persists for long, the fertilizer prices are expected to go up which might require higher subsidies," said an industry official on the condition of anonymity. In the past, the government has been making special financial provisions for additional subsidies in case of a spike in global prices.
Natural gas, the primary feedstock and energy source for urea production, accounts for a bulk of fertilizer manufacturing costs, making the sector highly sensitive to price spikes.
Research firm Zero Carbon Analytics has said that of the top countries that import oil and gas via the Strait of Hormuz, Japan faces the most direct risk of disruption, due to its high share of oil and gas trade through the shipping route and its reliance on imported oil and gas. South Korea ranks second-most at risk and India third.
The Strait of Hormuz, which handles nearly a fifth of global crude flows, has emerged as a flashpoint after US and Israeli strikes on Iran and retaliatory actions by Tehran. While there has been no formal closure, heightened uncertainty has been enough for carriers to alter schedules and pause sailings.
While India has over the past few years been diversifying its energy sources, a potential disruption of liquefied natural gas (LNG) flows via Strait of Hormuz will potentially have an impact on global pricing—India might need to pay a higher price.
Experts are of the view that the disruption in oil supplies is likely to lead to an increase in prices in the short term. Moreover, indirect impact via rise in shipping, freight and insurance costs may lead to inflation in input prices as a lot of fertilizer shipments pass through the Strait of Hormuz. In case of a sustained increase in the international prices of fertilizers due to the ongoing conflict, the government subsidy bill may increase. India typically supports the sector via additional subsidies to keep farm gate prices of fertilizers under control.
The Department of Fertilizers estimates its budget based on expected fertilizer consumption in the country, the price of natural gas, and global prices of finished fertilizers, which can vary from year to year.
"Tensions in the middle-east are expected to drive up international crude oil prices. This, in turn, is likely to increase contracted LNG prices by around 15-20%. As a result, both the production cost and the cost of imported urea will rise, leading to an anticipated increase in subsidy expenditure by over 10 %,” said Pushan Sharma, director, Crisil Intelligence.
Sharma added that India is the world’s second-largest producer of nitrogenous fertilizers after China, accounting for approximately 14% of global output. Within nitrogenous fertilizers, urea is the most widely consumed, produced, and imported in terms of volume.
India’s urea production stood at about 30.6 million tonnes (mt) in FY25. The primary raw material for urea production is natural gas, which makes up roughly 75-80% of the total production cost.
S. Sankarasubramanian, chairman, Fertilizer Association of India (FAI), and managing director and chief executive officer of Coromandel International Ltd, said, "While India relies on West Asia for certain fertilizers and raw materials, current fertilizer stocks across the country seem adequate. With Indian agriculture entering the off-season over the next three months, the demand is likely to remain soft ahead of the Kharif sowing season."
"Further, diversified sourcing arrangements and alternative shipping routes provide a reasonable cushion against short-term supply uncertainties. The industry is closely working with the government and other stakeholders to continuously monitor developments and ensure timely interventions," he added.
According to the Delhi-based FAI data, during April-December 2025, urea sales rose 3.8% to 31.16 mt. Domestic urea production during the period stood at 22.44 mt, while imports rose 85.3% to 8 mt, supporting higher sales. Di-ammonium phosphate (DAP) production during April–December 2025 was recorded at 3.03 mt, a 3.9% decline compared to the previous year, while imports rose 45.7% to 5.95 mt.
Sales during the period stood at 8 mt, compared to 8.33 mt in the corresponding period last year, with import volumes contributing to sustained phosphatic nutrient availability despite moderated offtake.
Similarly, the country is fully dependent on muriate of potash (MOP) imports for domestic consumption. The country imported 2.14 mt during April-December 2025.
According to experts, escalating geopolitical tensions and rising gas prices are likely to push up fertilizer costs.
For the urea sector, the impact will largely depend on a significant rise in Brent crude prices. A sustained increase in Brent crude prices is likely to raise the imported price of natural gas, which is linked to Brent. This will increase production costs and, in turn, raise the government’s subsidy burden. A similar rise was seen in fiscal 2023 when raw material prices such as phosphoric acid and ammonia surged, pushing fertilizer subsidies to a record allocation of about ₹2.5 trillion.