Fertiliser Sector Regulation in India: Impact on Farmers, Industry and Fiscal Deficit

Context

• The Uttar Pradesh government has banned the sale of non-subsidised fertilisers by urea manufacturers and suppliers, raising concerns over excessive controls in the Indian fertiliser industry.

Structure of the Fertiliser Industry in India

• The fertiliser sector in India is one of the most regulated industries in the country.
• It plays a crucial role in ensuring food security, given India’s large agricultural base and dependence on chemical fertilisers such as urea, DAP, MOP and NPK complexes.
• The maximum retail price (MRP) of urea is fixed at Rs. 266.5 per 45-kg bag, and this rate has remained largely unchanged since November 2012.
• Although some fertilisers such as Di-Ammonium Phosphate (DAP) are officially “decontrolled”, companies receive a fixed subsidy per bag, subject to maintaining a capped MRP.
  • For instance, the Centre provides a flat subsidy for DAP, but companies must sell it at a notified price to receive that subsidy.
• Similarly, for other fertilisers such as Muriate of Potash (MOP) and NPK complexes, MRPs are indirectly regulated. Companies must align prices with subsidy rates notified by the government, and “unreasonable” profits can be recovered from subsidy claims.
• Thus, while partial decontrol exists on paper, effective price control continues in practice.

The Uttar Pradesh Ban

• In January 2026, the Uttar Pradesh agriculture directorate issued an order prohibiting urea manufacturers and suppliers from selling any “gair-anudaanit” (non-subsidised) fertilisers in the state.
• The ban applies to several major fertiliser companies, including cooperative, public and private entities.

Reason Behind the Ban

• The state government acted on allegations of “tagging”, forcing farmers to buy non-subsidised products along with subsidised fertilisers. However, industry representatives argue that:
• Both product categories are sold through the same dealer networks.
• Cross-selling is a normal business practice.
• The market for speciality fertilisers in UP is relatively small compared to subsidised fertilisers.

Implications of the Ban

Impact on Nutrient Use Efficiency

• Speciality fertilisers are often more nutrient-efficient and environmentally sustainable. Restricting their sale may discourage balanced fertiliser use and worsen overdependence on cheap urea.
• India already faces the problem of excessive nitrogen application due to the highly subsidised price of urea.

Investor Sentiment

• The fertiliser industry operates in a capital-intensive environment. Frequent regulatory interventions can: Reduce private sector investment, Discourage innovation, Create policy uncertainty

Market Distortions

• Ministry sources argue that banning established players could open space for unorganised operators selling low-quality products.
• This may undermine quality control and farmer education.

Structural Challenges in the Fertiliser Sector

• Overdependence on Subsidies: The fertiliser subsidy bill remains a major fiscal burden.
• Imbalanced Nutrient Use: Artificially cheap urea leads to overuse of nitrogen relative to phosphorus and potassium.
• Supply Constraints: Reports of urea selling above MRP have been linked to rising consumption and production constraints.
• Policy Overreach: Layered controls on price, movement and sales restrict market flexibility.

Way Forward

• Gradual rationalisation of fertiliser subsidies.
• Promotion of balanced nutrient application under schemes like Soil Health Cards.
• Encouragement of speciality and efficiency-enhancing fertilisers.
• Clear and predictable regulatory framework to attract investment.

The fertiliser sector is central to India’s food security. However, excessive controls may hinder innovation, efficiency and long-term sustainability.

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