India’s cheap urea model faces costly reckoning

India's cheap urea subsidy program, which transformed the nation from a food importer to a major agricultural exporter, now faces a costly reckoning. The country consumes more urea per capita than both the United States and Brazil combined. However, soaring fertilizer prices due to disrupted global supply chains and rising energy costs have doubled the cost of procuring the nutrient.

Moreover, the war in Iran has further strained gas supplies needed for domestic fertilizer production, putting India among Asia's worst-performing currencies this year.

While fertilizer prices have eased somewhat, the financial damage is already evident, with the subsidy bill expected to exceed 3 trillion rupees ($31 billion) in the current fiscal year. The government has launched a campaign to encourage farmers to reduce fertilizer use and curb dependence on imports. Prime Minister Narendra Modi has urged a cutback, urging farmers to cut urea consumption by up to half to preserve the environment.

Nonetheless, changing entrenched agricultural practices is challenging, particularly in India where farmers manage small plots of land. The government's reliance on procurement and guaranteed purchases of key crops further discourages shifts towards less urea-intensive crops. As the global supply of Middle East fertilizers and gas remains uncertain, cooperatives in some key states are rationing supplies to manage the subsidy bill and mitigate potential crop losses.