Managing Agricultural Inputs and Farm Subsidies in India

India’s agriculture sector feeds over a billion people, employs nearly half the workforce, and contributes around 16% to the country’s GDP. Yet the farmers driving this engine often struggle with the rising cost of seeds, fertilizers, and water. This is precisely why managing agricultural inputs and farm subsidies effectively sits at the heart of India’s agricultural policy – it directly determines whether a small farmer in Vidarbha or a marginal cultivator in Bihar can afford to sow the next season.

Why input management matters in Indian agriculture 🔗

Agricultural inputs – seeds, fertilizers, pesticides, and irrigation – are the building blocks of farm productivity. Without access to quality inputs at affordable prices, yield growth stalls and food security weakens. India’s small and marginal farmers, who constitute 86% of the farming population and own less than two hectares of land, are especially vulnerable to input cost spikes. The government’s role in managing the supply and pricing of these inputs, therefore, is not just an economic intervention – it is a lifeline for millions of rural households.

Input subsidies were introduced to ensure farmers could afford essential production inputs, since input costs were rising sharply, particularly from the 1990s onward. Under this system, the central and state governments reimburse the difference between the actual cost and the subsidized rate paid by the farmer. India’s input subsidies on fertilizer, irrigation, and electricity – as notified to the WTO – climbed from USD 25 billion in 2011 to USD 48 billion in 2022-23, reflecting how central these expenditures have become to agricultural policy.

Fertilizer subsidies: the largest piece of the pie 🔗

Fertilizers account for the single largest share of India’s input subsidy bill. Fertilizer and power absorb 45.6% and 30% of all input subsidies respectively, reflecting their centrality to crop production. The government operates two main subsidy channels for fertilizers.

Urea subsidy scheme 🔗

Urea is the most widely used nitrogenous fertilizer in India. It is supplied to farmers at a fixed maximum retail price of ₹242 for a 45 kg bag – a price that has remained unchanged since March 2018. The government pays manufacturers and importers the difference between this fixed price and the actual cost of production and delivery. This price freeze has given farmers cost predictability, but it has come at a significant fiscal cost to the exchequer.

Nutrient-Based Subsidy (NBS) scheme 🔗

For phosphatic and potassic (P&K) fertilizers – including di-ammonium phosphate (DAP) and muriate of potash (MOP) – the government uses the Nutrient-Based Subsidy (NBS) scheme, introduced on 1 April 2010. Under NBS, a fixed subsidy is provided based on the nutrient content of the fertilizer, while companies are permitted to set the maximum retail price at reasonable levels, subject to government monitoring. This decontrolled approach allows market flexibility while still cushioning farmer costs.

Global supply disruptions have periodically pushed up DAP prices beyond the NBS coverage. In response, the government approved a one-time special subsidy of ₹3,500 per MT on DAP sales from April 2024 to March 2025, ensuring affordability during a period of geopolitical price volatility. The NBS allocation for the 2025 Kharif season alone stands at ₹37,216.15 crore – roughly ₹13,000 crore more than the previous Rabi season.

Direct Benefit Transfer (DBT) in fertilizers 🔗

A significant reform in fertilizer subsidy delivery has been the shift to Direct Benefit Transfer (DBT). Under the DBT system, 100% of the subsidy on various fertilizer grades is released to companies on the basis of actual point-of-sale transactions at retail outlets. This links subsidy payments to verified sales data, reducing diversion and improving targeting. The One Nation One Fertilizer scheme has further added uniformity in branding, ensuring transparency across the fertilizer supply chain.

Seed subsidies and soil health management 🔗

Quality seeds are the foundation of any productive crop. India supports seed access through the Sub-Mission on Seeds and Planting Material (SMSP), which promotes the production and distribution of certified seeds of improved varieties. Farmers can access subsidized high-yielding and disease-resistant seed varieties through this programme.

Alongside seed access, managing soil fertility is critical to ensuring that inputs are used efficiently. The Soil Health Card (SHC) scheme, launched in 2015, provides farmers with a detailed analysis of the nutrient status of their soil, helping them make informed decisions about fertilizer application. Proper soil management not only improves yields but also reduces over-application of fertilizers – a major driver of soil degradation. By connecting soil testing with input recommendations, the scheme promotes precision use of inputs rather than blanket application.

The share of fertilizer subsidy in India’s total agricultural subsidy increased from around 25% in 2000-01 to over 53% by 2020-21, raising concerns about excessive reliance on inorganic inputs. To counter this, the government promotes organic alternatives under initiatives like Paramparagat Krishi Vikas Yojana (PKVY) for organic farming clusters, and the GOBARdhan initiative, which provides ₹1,500 per MT as market development assistance to encourage the use of organic fertilizers derived from agricultural waste.

Irrigation subsidies and water use efficiency 🔗

Water is arguably the most constrained input in Indian agriculture. Over 52% of the net sown area is still rain-fed, and groundwater depletion is an escalating crisis. Irrigation subsidies – provided primarily by state governments – help make water infrastructure and usage affordable, but their design has significant consequences for both productivity and sustainability.

Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) 🔗

The flagship irrigation programme, PMKSY, was launched in July 2015 with the vision of “Har Khet Ko Pani” (water to every field) and “Per Drop More Crop” (efficiency in every drop). It aims to expand irrigated area, reduce water wastage, and promote micro-irrigation technologies. The scheme takes an end-to-end approach – from source creation and water distribution to field application and farmer extension.

The Union Budget 2025-26 allocated ₹8,259.85 crore to PMKSY, and from FY16 to FY25, the government has released nearly ₹21,968.75 crore to states for the “Per Drop More Crop” component alone, covering over 95.58 lakh hectares under micro-irrigation.

Micro-irrigation: drip and sprinkler systems 🔗

A standout component of PMKSY is its promotion of micro-irrigation – drip and sprinkler systems that deliver water directly to plant roots. These systems reduce water usage by 40-80% compared to conventional flood irrigation, while also improving crop quality and reducing labour costs. The government subsidizes installation costs at 55% for small and marginal farmers and 45% for other farmers. States like Maharashtra, Karnataka, and Rajasthan have seen significant adoption, particularly in water-stressed regions.

Research published in Frontiers in Sustainable Food Systems confirms the productivity impact: PMKSY micro-irrigation beneficiaries in Tamil Nadu achieved yield gains of 158.52 kg/ha in groundnut and 1,560.76 kg/ha in banana compared to non-beneficiaries, validating the programme’s effectiveness when access is equitable.

Credit support: Kisan Credit Card scheme 🔗

Even with subsidized inputs, farmers need timely credit to purchase them. The Kisan Credit Card (KCC) scheme, introduced in 1998, addresses this directly. It enables farmers to purchase agricultural inputs such as seeds, fertilizers, and pesticides through short-term credit at affordable interest rates, reducing dependence on informal moneylenders who charge far higher rates. The scheme was later expanded to cover allied activities like animal husbandry and fisheries, broadening the financial safety net for rural households.

PM-KISAN and direct income support 🔗

While input subsidies reduce costs indirectly, the PM-KISAN scheme provides farmers with ₹6,000 per year directly into their bank accounts in three instalments. This helps farmers manage critical agricultural expenses during key periods of the farming cycle – such as purchasing seeds before sowing or paying for labour during harvest. The scheme has also been a driver for financial inclusion, bringing millions of unbanked farmers into the formal system. As of early 2025, PM-KISAN has supported over 110 million farmer families nationally.

Challenges and environmental trade-offs 🔗

India’s input subsidy architecture, despite its scale, comes with well-documented challenges. The most pressing is the environmental cost of poorly targeted subsidies.

A 2024 study published in Nature Communications found that output subsidies guaranteeing crop procurement at above-market prices may have driven approximately 30% over-production of water-intensive crops. In Punjab, rice procurement alone could account for at least 50% of the groundwater table decline over 34 years. In Madhya Pradesh, the adoption of wheat procurement subsidies in the late 2000s appears to have increased dry wells by 5.3 percentage points – a direct consequence of incentivizing water-intensive cropping without matching water management policies.

On the fertilizer side, excessive and imbalanced use – driven partly by heavily subsidized urea – has caused soil health degradation. Continuous nitrogenous fertilizer use has led to declining crop yields in several regions, and NPK fertilization alone has resulted in secondary and micronutrient deficiencies over time. Reforms like soil test-based integrated nutrient management and promotion of nano urea and nano DAP are steps toward correcting this imbalance.

There is also the issue of subsidy reach. Research indicates that fertilizer subsidies have worked best in underdeveloped areas with low input use and a high proportion of small farmers, while power subsidies are most effective in regions with high irrigation demand. However, in practice, large farmers and agro-industries have often captured a disproportionate share of benefits, leaving marginal cultivators underserved.

The way forward: smarter, targeted input management 🔗

The direction of reform in India’s input subsidy policy is increasingly toward precision, targeting, and sustainability. Key imperatives include:

Soil health-linked fertilizer recommendations through the Soil Health Card system must become standard practice, moving farmers away from blanket urea application toward crop-specific, nutrient-balanced inputs. DBT-based subsidy delivery needs further strengthening to ensure benefits reach small and marginal farmers directly rather than being absorbed upstream. Micro-irrigation expansion under PMKSY must be accelerated, particularly in groundwater-stressed states, with a focus on equitable access for women farmers and small landholders. And crop diversification incentives must complement input subsidies – so that procurement support does not push farmers toward water-intensive monocultures at the cost of aquifer sustainability.

The recently launched Pradhan Mantri Dhan-Dhaanya Krishi Yojana (PMDDKY), announced in the 2025-26 Union Budget, consolidates 36 existing agricultural schemes into a single framework targeting 100 underperforming districts. It allocates approximately 40% of its budget to subsidies on seeds, fertilizers, and equipment, and 30% to infrastructure including irrigation – reflecting an integrated approach to input management that combines direct support with long-term productive investment.

Effective management of agricultural inputs and subsidies is not just about spending more – it is about spending better. When subsidies are well-targeted, environmentally conscious, and backed by data from tools like soil health cards and DBT systems, they can genuinely transform farm productivity while protecting the natural resource base that Indian agriculture depends on.

What do you think? As India moves toward more targeted input subsidies, how can policymakers ensure that small and marginal farmers – and not just larger landholders – capture the real benefits? And given the documented link between input subsidies and groundwater depletion, should irrigation subsidy design be overhauled to incentivize water-efficient crops over water-intensive ones?

References

1. https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154966&ModuleId=3
2. https://pmddky.com/
3. https://www.iisd.org/articles/policy-analysis/agricultural-subsidies-india
4. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116214
5. https://vajiramandravi.com/current-affairs/fertilizer-subsidy-soil-health-management-in-india/
6. https://www.fert.nic.in/fertilizer-subsidy
7. https://kshema.co/blogs/agricultural-subsidies-in-india-farmers/
8. https://www.cwejournal.org/article/poverview-of-agricultural-subsidies-in-india-and-its-impact-on-environmentp
9. https://www.india.gov.in/spotlight/pradhan-mantri-krishi-sinchayee-yojana
10. https://www.ibef.org/government-schemes/pradhan-mantri-krishi-sinchayee-yojana
11. https://www.acfiindia.com/blog/government-schemes-empowering-indian-farmers-msp-pm-kisan-and-micro-irrigation-initiatives
12. https://www.frontiersin.org/journals/sustainable-food-systems/articles/10.3389/fsufs.2026.1755061/full
13. https://prsindia.org/budgets/parliament/demand-for-grants-2023-24-analysis-agriculture-and-farmers-welfare
14. https://www.nature.com/articles/s41467-024-52858-6