Centre-state mismatch on fertiliser policy: states block sale of non-subsidised nutrient products

India's fertiliser policy is moving in two different directions at the same time. At the central level, Prime Minister Narendra Modi has been urging farmers to cut chemical fertiliser use by 25 to 50 per cent, both to save foreign exchange and to protect long-term soil health. But at the state level, governments in Uttar Pradesh, Madhya Pradesh and Maharashtra have done the opposite. They have ordered that manufacturers and suppliers of subsidised fertilisers such as urea and di-ammonium phosphate (DAP) cannot also sell products that are not under government subsidy or price control. Other states may follow.

The state-level orders effectively ban the sale of bio-fertilisers, nano fertilisers, water-soluble and liquid speciality nutrients, micronutrients and bio-stimulants. These are mostly small-dose, high-value products used on crops like grapes, apples and pomegranates. Companies such as IFFCO, Coromandel International and Yara Fertilisers market many of these products. Crucially, all of them are notified under the Centre's Fertiliser Control Order only after field trials for bio-efficacy and toxicology conducted by the Indian Council of Agricultural Research (ICAR).

The contradiction is sharp. Urea and DAP, which the Centre wants farmers to use less of, lose a large share of their nutrients due to volatilisation (gas loss), leaching (washing away with water) and "locking" inside soils. Newer products are designed to fix exactly this problem — they deliver nutrients directly to the root zone through drip irrigation or onto leaves through foliar spray, which means less waste and lower environmental damage. If companies cannot sell these products freely, they lose the incentive to innovate. The state orders therefore work against the Centre's own goals on soil health, foreign exchange and the ease of doing business.

The wider economics is just as worrying. India produces enough land, water and sunshine but is heavily import-dependent on fertilisers. In 2025-26, India's imports of fertiliser inputs and finished products were valued at about $27.2 billion. With the West Asia conflict and the closure of the Strait of Hormuz disrupting energy and shipping flows, that bill could soon surpass the 2022-23 record of $33.4 billion that followed Russia's invasion of Ukraine.

This is also the right moment, the argument goes, to rethink India's product-specific fertiliser subsidy system. Today, subsidy is attached to the bag — so a farmer who buys urea or DAP at a controlled price benefits, while a farmer who buys nano-urea or a speciality nutrient pays the full market price. One reform option being discussed is to expand the PM-Kisan scheme, which currently pays Rs 6,000 a year to each eligible farmer, into a "PM-Kisan 2.0" with a guaranteed minimum income per acre per crop. If fertiliser prices were market-determined and farmers received direct income support, they would have the incentive to choose the right nutrient mix for each crop instead of overusing urea simply because it is cheap.

For students, the story is a clear example of how Centre-state coordination problems can directly affect agricultural reform and India's external balance. It is also a case study in the difference between price subsidies and direct income transfers — a question that is central to GS Paper III economics.

Key concepts worth remembering are the Fertiliser Control Order, ICAR's role in testing new products, the working of the nutrient-based subsidy (NBS) for phosphatic and potassic fertilisers, the controlled price of urea, and the design choices behind direct benefit transfer schemes like PM-Kisan.