Why fertilisers could be the war’s soft underbelly victim for India

Why Fertilisers Could Be the War’s Soft Underbelly Victim for India

The Core Tension: Strategic Vulnerabilities in Fertiliser Dependency

The Russia-Ukraine conflict has exposed critical vulnerabilities in India’s fertiliser value chain, highlighting the tension between its global import dependencies and the need for domestic self-sufficiency. Fertilisers, pivotal for India's agricultural economy, are highly sensitive to international geopolitical shocks due to price volatility and disrupted supply chains. This issue falls under the GS-III syllabus, particularly within the sub-themes of agricultural inputs, external energy dependencies, and supply chain management.

This debate encapsulates the broader challenge of agricultural resilience — balancing short-term affordability for farmers (through subsidies) with long-term sustainability via self-reliant production capacity. Misalignments in this balance have implications for food security, fiscal health, and energy strategy. For instance, India’s strategy to tap alternative crude supplies amid geopolitical tensions showcases the importance of diversifying dependencies.

UPSC Relevance Snapshot

• GS-III: Agriculture inputs, Global supply chains, Industrial Policy, Energy Dependency.
• GS-II: Government policy interventions, International relations (impact of conflicts on India).
• Essay: Themes on agricultural sustainability, external dependence, or food security linkages.

Arguments For: Why Fertilisers are Strategically Vulnerable

India's fertiliser vulnerability is rooted in its structural dependence on imports, particularly for intermediate raw materials like potash, phosphates, and natural gas used in urea production. The Russia-Ukraine war disrupted key supply routes, adding volatility to an already concentrated trade network. Advocates of reform argue that India's over-reliance on subsidies and imports creates a trifecta of risks: fiscal overburdening, supply insecurity, and stagnant domestic innovation in fertiliser technologies.

• Dependence on imports: India imports nearly 25% of its urea, 90% of phosphates, and 100% of potash. Russia and Belarus are major global exporters of potash, now under sanctions.
• Cost escalation: The Economic Survey 2023 highlighted a 50% increase in global fertiliser prices post-war, straining India's fertiliser subsidy budget (₹1.94 lakh crore in FY23).
• Excessive subsidies dilute private sector growth: Government procurement under Nutrient-Based Subsidy (NBS) reduces the incentive for domestic players to innovate or scale production.
• Ripple effects on agriculture: Higher fertiliser prices have a direct inflationary impact and jeopardize low-margin crop profitability, especially for smaller farmers. This is similar to how cooling effects on inflation are often temporary in such scenarios.

Counterpoints: Strategic Autonomy Through Domestic Fertiliser Capacity

Critics of the overreliance framework caution against over-interpreting short-term wartime disruptions as systemic failings. They argue that India has made substantial progress on fertiliser self-reliance goals through policy innovations like PMBJP (Pradhan Mantri Bhartiya Jan Urvarak Pariyojna), and point out that global markets always recover post-conflict, given diversified sources. Additionally, advocates emphasize the complexities of balancing rural welfare with fiscal discipline.

• Rise of domestic capacity: New urea plants under PMBJP have increased production capacity by 2 million tonnes annually.
• Smoother procurement alternatives: India has already diversified imports, with significant agreements signed with Canada (potash) and Morocco (phosphates).
• Price rationalization mechanisms: Economists argue that pre-existing contractual provisions with producers have already absorbed most cost shocks, ensuring steady supply flow.
• A case for subsidies: Fertiliser subsidies benefit 60% of rural households dependent on agriculture, safeguarding food security in a nation with nearly 800 million under food subsidy schemes.

Comparative Analysis: India vs. China on Fertiliser Resilience

What the Latest Evidence Shows

Recent developments underline persistent challenges but also tangential progress in diversifying India's fertiliser ecosystem. India signed a $1.5 billion long-term agreement with Canada for potash imports in 2023, reducing its dependence on Russia and Belarus. Simultaneously, domestic urea production under PMBJP increased by 20%, as per the Ministry of Chemicals and Fertilisers. However, the global fertiliser price index remains 25% elevated compared to pre-2022 levels, according to World Bank data.

The CAG (2023) audit highlighted inefficiencies in nutrient-based subsidy utilization, revealing that over 30% of fertiliser subsidies are diverted or wasted due to black market sales and farmer misuse. This undermines fiscal discipline and hits smallholders disproportionately. Such inefficiencies mirror broader governance challenges, as seen in delayed implementation of rural job acts.

Way Forward

To address India's fertiliser dependency and ensure agricultural sustainability, the following measures are recommended:

• Promote domestic production: Expand investments in domestic fertiliser plants under PMBJP and incentivize private sector participation to reduce import dependency.
• Diversify import sources: Strengthen trade agreements with alternative suppliers like Canada and Morocco to mitigate geopolitical risks.
• Enhance subsidy efficiency: Implement stricter monitoring mechanisms to curb black market sales and ensure subsidies reach intended beneficiaries.
• Encourage balanced fertiliser use: Launch awareness campaigns and extension services to promote soil health and reduce over-reliance on nitrogen-heavy urea.
• Leverage technology: Utilize digital platforms for real-time tracking of fertiliser distribution and to predict demand-supply mismatches.