India’s fertiliser subsidy requirement for FY27 is set to overshoot budgeted allocations as the West Asia crisis sharply raises import costs of urea, DAP, natural gas and key raw materials, even as comfortable inventories cushion immediate Kharif supply risks, CareEdge Ratings said.
In a sector report released on 13 May, CareEdge warned that the ongoing geopolitical disruptions around the Strait of Hormuz have exposed India’s deep import dependence across the fertiliser value chain at a time when global prices of ammonia, sulphur, urea and DAP have surged.
Despite relatively healthy reservoir levels, improving acreage and continued increases in minimum support prices for major crops, fertiliser demand for the upcoming Kharif season will be shaped by monsoon progression, with the Indian Meteorological Department forecasting below-normal rainfall at 92 per cent of the long period average for CY2026.
CareEdge said India’s import dependence for fertilisers rose materially in FY26 after domestic production stagnated while consumption grew. Fertiliser consumption is estimated to have increased by around 3 per cent in FY26, while domestic production slipped marginally to around 517 lakh metric tonne from 518 lakh metric tonne in FY25. The supply gap was met through sharply higher imports, estimated to have jumped to around 249 lakh metric tonne from 160 lakh metric tonne a year earlier, pushing overall import dependence to around 34 per cent from 23 per cent.
The vulnerability is most visible in urea and DAP, the two most consumed fertilisers in India.
For urea, production in FY26 is estimated at around 293 lakh metric tonne, affected in March 2026 by reduced gas availability. Imports, however, surged to around 115 lakh metric tonne to build buffer stocks for Kharif, taking import dependence back to around 29–30 per cent, levels last seen before FY23. In FY25, as much as 73 per cent of India’s urea imports came from West Asia, particularly Oman, Qatar, Saudi Arabia and the UAE. While China eased export curbs in 10MFY26, West Asia still accounted for 37 per cent of imports, with Oman alone contributing 17 per cent.
DAP presents an even sharper challenge. Import dependence for DAP in FY26 is estimated at around 68 per cent, the highest in recent years. Saudi Arabia alone accounted for 40 per cent of India’s DAP imports in 10MFY26. International DAP prices have risen to around USD 900 per metric tonne, nearly double pre-crisis levels. However, with the maximum retail price fixed at Rs 27,000 per metric tonne and subsidy at Rs 30,000 per metric tonne, imports remain economically unviable. Even after the government’s special DAP package of Rs 3,500 per metric tonne, there remains an under-recovery of nearly Rs 23,000 per metric tonne.
The price shock has been driven by sharp increases in key inputs. Since March 2026, ammonia prices have risen by around 60 per cent and sulphur by around 50 per cent. India imports over 80 per cent of its ammonia and sulphur requirements from Gulf countries, making supplies highly vulnerable to any disruption in the Strait of Hormuz. At the same time, spot prices of imported natural gas rose from around USD 10 per mmbtu to more than USD 15 per mmbtu in April 2026. Around 85 per cent of the fertiliser sector’s gas requirement in FY26 was met through imports, with 63 per cent of gas imports coming from Gulf nations and Qatar alone accounting for 45 per cent.
In April 2026 alone, urea prices increased by around 85 per cent month-on-month to USD 950 per tonne, while DAP rose by around 30 per cent to USD 900 per tonne following disruptions to fertiliser and gas trade routes.
Yet, near-term availability appears comfortable. Against an estimated Kharif requirement of about 390 lakh tonne, fertiliser stocks as of March 31, 2026 stood at around 40 per cent of requirement. By April 2026, inventory improved further to about 49 per cent of Kharif needs versus a normal level of 33 per cent, reducing the immediate risk of a supply squeeze, although shipment timing and product-wise availability remain critical.
The larger stress point, CareEdge said, will be the subsidy bill.
After touching a record Rs 2.55 lakh crore in FY23, the fertiliser subsidy fell to Rs 1.95 lakh crore in FY24 and Rs 1.77 lakh crore in FY25 as input costs eased. However, the FY26 subsidy bill is already likely to exceed the revised estimate of Rs 1.86 lakh crore by over 10 per cent. For FY27, the government has budgeted Rs 1.71 lakh crore, including Rs 1.17 lakh crore for urea and Rs 0.54 lakh crore under the nutrient-based subsidy scheme. CareEdge said the recent surge in import prices suggests this allocation will “once again fall short of actual requirements”, potentially requiring supplementary grants.
“After a steady performance for three years ending FY26, the fertiliser sector is entering FY27 amid a challenging operating environment. The ongoing West Asia geopolitical crisis led to a sharp rise in the prices of natural gas and other key inputs for urea and complex fertilisers. Henceforth, movements in global raw material prices, including gas prices, shall influence the profitability of fertiliser companies, especially NPK players. At the same time, it shall also influence the subsidy requirement of urea manufacturers,” said Rabin Bihani, Associate Director, CareEdge Ratings.
“Timely subsidy releases in recent years have reduced receivable build-up and supported working capital management of fertiliser companies. Relatively comfortable reservoir levels and a better inventory position offer a near-term cushion for the Kharif sowing season. Still, rising import dependence, cost escalations, and the expectation of a below-normal monsoon in CY26 could keep the sector on edge and increase the subsidy budget requirement,” said Hardik Shah, Director, CareEdge Ratings.