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Fertilisers · Policy EconomicsIndia’s Fertiliser Subsidy: The Rs 40,000-Per-Tonne Paradox, the West Asia Shock, and What Green Urea Actually Needs to Compete
India’s urea subsidy for FY2025-26 is budgeted at Rs 1.19 lakh crore — approximately Rs 35,000 to Rs 40,000 per tonne of domestic urea, against a farmer selling price of Rs 5,378 per tonne unchanged since March 2018. The West Asia conflict has driven international urea prices to approximately $700 per tonne — up $200 to $250 from pre-conflict levels — and the Gulf region supplies 20 to 30% of India’s urea requirement, 30% of its DAP imports, and approximately 50% of the LNG that feeds its domestic urea plants. At $700 per tonne international urea, India is paying approximately Rs 55,000 per tonne in subsidy on each tonne of urea it imports. The marginal additional cost of green urea over conventional at current green hydrogen costs of $4 to $6 per kg is approximately Rs 12,600 to Rs 33,600 per tonne. India is already paying more than that to subsidise imported conventional urea during the current geopolitical shock. This is not an argument for immediate subsidy redirection — the political economy of urea in India is one of the most constrained policy environments in government. But it is a precise statement of the economic reality: green urea’s cost premium over conventional urea, which is the standard objection to decarbonisation in this sector, is smaller than the variance in the subsidy India already pays on the same product when global gas markets are disrupted.
The Union Cabinet approved a 10 to 21% increase in NBS (Nutrient-Based Subsidy) rates for P&K fertilisers for Kharif 2026 (effective April 1, 2026) with a budgetary requirement of approximately Rs 41,534 crore — approximately Rs 4,317 crore more than Kharif 2025. Business Standard reported on April 8, 2026 that global urea prices rose approximately $200 to $250 per tonne from pre-conflict levels to approximately $700 per tonne FOB, while DAP prices reached $750 to $770 per tonne. The Gulf region accounts for 20 to 30% of India’s urea requirement and approximately 50% of India’s LNG imports. India issued a tender for urea imports described as “the world’s largest fertiliser importer” after West Asia hit domestic supply confidence. The subsidy consequences of this shock will materially exceed the FY2026 Budget Estimate of Rs 1.68 lakh crore for total fertiliser subsidy.
India’s urea subsidy creates an effective farmer price of Rs 5,378 per tonne (Rs 242 per 45 kg bag, unchanged since March 2018) against a production and import cost of approximately Rs 40,000 to Rs 60,000 per tonne depending on international gas and urea prices. The net subsidy per tonne ranges from approximately Rs 35,000/t in a normal gas price environment to approximately Rs 55,000/t during a geopolitical shock such as the current West Asia conflict. The FY2025-26 urea subsidy Budget Estimate of Rs 1.19 lakh crore works out to approximately Rs 35,000 to Rs 39,000 per tonne of the approximately 31 Mt of domestic production plus 6 to 7 Mt of imports consumed in a normal year.
The implicit carbon price in India’s subsidy system is approximately Rs 7,000 to Rs 14,000 per tCO₂ avoided — significantly above the expected CCTS Phase 1 carbon price of Rs 600 to Rs 900 per tCO₂e. The calculation: conventional gas-based urea emits approximately 1.6 to 2.6 tCO₂/t fertiliser; green urea emits approximately 0.2 tCO₂/t (with green H₂ and captured CO₂); the carbon reduction is approximately 1.4 to 2.4 tCO₂/t. The marginal additional cost of green urea at current green H₂ prices of $4 to $6/kg is approximately Rs 12,600 to Rs 33,600/t. Dividing the green premium by the CO₂ reduction gives an implicit abatement cost of approximately Rs 7,000 to Rs 14,000 per tCO₂ — above CCTS but comparable to EU ETS (approximately €65 to €80/tCO₂).
The break-even green H₂ price at which green urea becomes cost-competitive with conventional urea — without any additional subsidy — is approximately $2.0 to $2.5 per kg. Multiple credible analyses project green H₂ at $2 to $3/kg in India by 2030 under optimistic renewable buildout scenarios. Academic analysis confirms that green urea produced from green ammonia can approach cost parity with gas-based urea by approximately 2028 in India when fossil fuel subsidy distortions are excluded from the comparison. At the current West Asia-elevated urea import price of approximately $700/t, green urea from green H₂ at $4/kg (cost approximately $550/t urea equivalent) is already approaching parity with the landed cost of imported conventional urea before subsidy — a comparison that should change how industry, investors, and policymakers think about the green ammonia investment case right now.
The subsidy system simultaneously suppresses the demand signal for decarbonisation and provides the government’s single most powerful financing instrument for the green transition. The Rs 1.19 lakh crore allocated annually to urea subsidy is approximately 20 times the Rs 5,000 crore National Mission for Sustainable Steel, and approximately 212 times the Rs 561 crore allocated to the Strategic Petroleum Reserve programme. A 5% efficiency improvement in urea consumption — achievable through precision agriculture and balanced NPK use — would free approximately Rs 6,000 crore per year from the subsidy budget. A 10% shift of new capacity to green ammonia feedstock would require approximately Rs 18,000 to Rs 30,000 crore in additional support above current Haber-Bosch production economics — funded within the subsidy budget from efficiency savings alone over 4 to 5 years.
CBAM covers fertilisers on Scope 1 and Scope 2, creating a direct financial penalty on carbon-intensive ammonia and urea exports to the EU. India exported approximately 2.4 Mt of ammonia in FY25. At the conventional gas-based production GEI of approximately 2.0 tCO₂/t and the EU ETS price of €65/tCO₂, the embedded CBAM exposure on Indian ammonia exports is approximately €130/t — against an international ammonia price of approximately $400 to $500/t. Green ammonia at 0.2 tCO₂/t would reduce CBAM to approximately €13/t. This is already a commercially decisive export competitiveness argument for the one or two Indian companies positioned to supply green ammonia to EU buyers before 2030.
What the subsidy actually costs per tonne — and how it compares to green urea
The urea subsidy in India is one of the most misunderstood numbers in Indian fiscal policy. It is routinely described as Rs 1.19 lakh crore in the Budget, and this aggregate is accurate — but the per-tonne figure is what makes the green transition calculus legible. India consumes approximately 35 to 40 Mt of urea per year, of which approximately 30 to 31 Mt is produced domestically and 5 to 10 Mt is imported. At a budgeted Rs 1.19 lakh crore for urea subsidy and approximately 34 to 38 Mt of total consumption, the implicit per-tonne subsidy is Rs 31,000 to Rs 35,000 per tonne in a normal gas price environment. During geopolitical shocks — the 2022 Ukraine crisis and the current West Asia conflict — the per-tonne subsidy on imported urea can exceed Rs 50,000 per tonne.
(gas-based, FY2025-26) Green urea
(green H₂ based, 2026 costs)
Gas = 70–80% of urea production cost
At $2/kg green H₂: ~$225/t urea in H₂ cost
Rs 58,000–63,000/t (West Asia crisis: $700/t import equivalent)
Rs 26,000–32,000/t (green H₂ at $2/kg — 2030 target)
Rs 52,622–57,622/t (West Asia crisis, imported urea)
Rs 20,622–26,622/t (green H₂ at $2/kg — 2030 target)
Rs 0 to −Rs 15,000/t at green H₂ $2/kg — green urea becomes CHEAPER than imported conventional in a West Asia shock environment
The table reveals three analytical facts that rarely appear in the same discussion. First, the absolute subsidy per tonne of conventional urea (Rs 34,000–58,000/t depending on market conditions) is of the same order as the total cost of green urea at 2030 green H₂ cost targets. Second, during a geopolitical shock — like the current West Asia conflict — the subsidy on imported conventional urea (approximately Rs 52,000–57,000/t) already exceeds the total production cost of green urea at $4/kg green H₂ (approximately Rs 52,600/t). The green urea premium over conventional, which is the standard objection to decarbonisation, disappears during exactly those moments when the subsidy burden on conventional urea is most acute. Third, at $2/kg green H₂ — the cost level multiple credible analyses project for India by 2028 to 2030 — the government would pay less subsidy on green urea than on imported conventional urea even in a normal gas price environment.
The implicit carbon price — what India is already paying per tCO₂
Every rupee India spends subsidising conventional gas-based urea is implicitly paying for the carbon emissions embedded in that production. The calculation of the implicit carbon price requires three inputs: the production carbon intensity of conventional versus green urea, the marginal cost difference between the two, and the CO₂ reduction per tonne of urea that switching to green feedstock achieves.
The implicit abatement cost at current green H₂ prices (Rs 7,000–18,700/tCO₂) is 8 to 20 times above the CCTS Phase 1 carbon price — confirming that carbon pricing alone cannot drive the fertiliser green transition at present. But it is comparable to EU ETS levels (approximately Rs 5,850/tCO₂ at €65) and within range of what the EU considers economically rational to spend on hard-to-abate decarbonisation. The message is not that the transition is expensive by global standards — it is that the transition is expensive relative to India’s domestic carbon price signal, and the gap will close as green H₂ costs fall. The policy question is whether India wants to capture this transition before or after global competition for green ammonia supply tightens, and before the EU’s green premium market (already paying 20 to 30% above conventional ammonia for verified green product) is locked up by Gulf producers already building green ammonia plants.
Energy security — the argument that may move faster than the carbon one
India’s fertiliser subsidy bill is structurally exposed to global gas and urea price shocks in a way that domestic green ammonia production would not be. The LNG pool price mechanism — through which GAIL aggregates domestic and imported gas at a blended rate for urea plants — shields individual plants from price volatility, but it concentrates that volatility into the national subsidy budget. IEEFA’s analysis has documented India’s rising dependence on LNG for urea production: in FY2020-21, re-gasified LNG accounted for as much as 63% of total gas consumption in the fertiliser sector. Every dollar per MMBtu increase in global LNG prices adds approximately Rs 2,500 to Rs 3,000 crore to India’s annual fertiliser subsidy bill.
Green ammonia produced domestically from Indian solar and wind does not have this vulnerability. Its cost is primarily capital (electrolyser, renewable energy plant) — not fuel. Once the plant is built, the cost of production is largely fixed and insulated from global gas price movements. The West Asia crisis illustrates exactly this vulnerability in real time: international urea at $700/t when the government’s Budget assumed a substantially lower import price creates an immediate fiscal pressure that has no equivalent for domestically produced green urea. An Indian green ammonia plant commissioned in 2028 would have been producing urea through the West Asia shock at its locked-in capex-driven cost — not at $700/t international market plus subsidy.
This energy security argument is arguably more politically tractable than the carbon argument in India’s current policy discourse. The government has already demonstrated willingness to pay large premiums for energy security — through coal import substitution, through LNG reserve policy, and through the National Mission for Advanced Ultra Supercritical coal plants. A green ammonia investment at Rs 12,600 to Rs 33,600 per tonne additional cost compared to conventional — which eliminates dependence on Gulf gas imports for that incremental tonne — is a straightforward energy security calculation, not a climate one.
India’s Hydrogen Purchase Obligation requires fertiliser plants to procure a specified fraction of green hydrogen in their production feedstock. The HPO creates a mandated demand for green ammonia within the subsidised urea supply chain — meaning that as HPO percentages rise, the green urea cost premium is automatically covered by the subsidy budget, since the government pays the difference between production cost and the fixed MRP for all urea regardless of feedstock. The HPO is therefore not merely a climate policy — it is a mechanism to absorb the green premium within the existing subsidy architecture without requiring explicit green premium payments or new budget lines. A fertiliser plant operating under the HPO that uses 10% green H₂ at $4/kg in its charge mix faces approximately Rs 1,260 to Rs 3,360/t additional cost on that 10% fraction — which the government pays as part of the normal concession rate calculation. The HPO’s design is precisely calibrated to slip green cost absorption under the existing subsidy framework without requiring a formal policy change that would attract political opposition.
Frequently Asked Questions
What is India’s effective subsidy per tonne of urea, and how does it compare to the cost of green urea?
India’s FY2025-26 urea subsidy Budget Estimate is Rs 1.19 lakh crore. Against approximately 34 to 38 Mt of total urea consumption (31 Mt domestic production plus 6 to 7 Mt imports in a normal year), the implicit per-tonne subsidy is approximately Rs 31,000 to Rs 35,000 in a normal gas price environment. During geopolitical shocks — the current West Asia conflict has driven international urea to approximately $700/t — the subsidy on each tonne of imported urea reaches approximately Rs 52,000 to Rs 57,000 (landed cost of approximately Rs 58,800/t at Rs 84/$ minus the farmer MRP of Rs 5,378/t). Green urea produced from green hydrogen at $4/kg costs approximately Rs 52,600 to Rs 80,600/t total — comparable to or already below the subsidy India pays on imported conventional urea during the current geopolitical shock. At green H₂ $2/kg (projected achievable in India by 2028 to 2030), green urea total cost falls to approximately Rs 26,000 to Rs 32,000/t — less than the government currently pays per tonne in subsidy on conventional urea in a normal market.
What is the break-even green hydrogen price at which green urea becomes cost-competitive with conventional urea in India?
The break-even green H₂ price at which green urea total production cost equals conventional gas-based urea production cost (without any additional subsidy) is approximately $2.0 to $2.5 per kg. This is based on conventional urea production cost of approximately Rs 40,000 to Rs 47,000/t at pooled gas prices of $14 to $16/MMBtu, and green urea cost of approximately Rs 26,000 to Rs 32,000/t at $2/kg green H₂ (plus CO₂ capture and fixed costs). Multiple analyses, including a 2022 ScienceDirect paper on green urea in India, project this break-even achievable by approximately 2028 if renewable energy costs continue falling and electrolyser costs decline on current trajectory. During a West Asia gas price shock, the break-even green H₂ price rises to approximately $4 to $5/kg — meaning green urea from current $4/kg H₂ is already within reach of cost parity with the landed cost of imported conventional urea at $700/t international prices.
How does CBAM affect Indian ammonia and fertiliser exports to the EU?
CBAM covers fertilisers on both Scope 1 and Scope 2 embedded emissions. India exported approximately 2.54 Mt of ammonia in FY25. At conventional gas-based production GEI of approximately 2.0 tCO₂/t and EU ETS prices of approximately €65/tCO₂, the embedded CBAM exposure on Indian ammonia exports is approximately €130/t — against an international ammonia price of approximately $400 to $500/t (approximately €370–460/t). This represents a CBAM cost of approximately 28 to 35% of the product value — commercially prohibitive unless the exporter provides verified actual emission data showing lower intensity. Green ammonia at approximately 0.2 tCO₂/t would reduce CBAM to approximately €13/t. The CBAM argument is therefore most powerful for the one or two Indian producers positioned to supply verified green ammonia to EU buyers — for them, the carbon cost differential against conventional Indian competitors is approximately €117/t of ammonia, which is a decisive export competitiveness advantage.