Energy Sovereignty and Security in West Asia

The ongoing conflict in West Asia has highlighted the critical need for energy sovereignty and security as economic necessities. The disruptions in the Strait of Hormuz have had significant impacts on global energy supply, affecting India's agricultural economy by restricting fertilizer supplies and causing energy shocks.

India's Fertilizer Subsidy Challenge

• In 2022-23, India's fertilizer subsidy bill increased to over ₹2.25 trillion, doubling the budget estimate due to global price hikes and raw material disruptions.
• This vulnerability is due to India's dependence on imported raw materials for fertilizer production, as domestic production is insufficient.
• Urea, a key nitrogen fertilizer, saw 13% of its requirements met through imports in 2024-25, with over 80% of the natural gas feedstock being imported.
• For phosphorus and potassium, 90% of materials are imported, with potash being entirely sourced from abroad.

Fertilizer Subsidy Trends

• Despite being the world's third-largest fertilizer producer, India's reliance on external feedstocks exposes it to global disruptions.
• The subsidy burden has consistently climbed, with an 11-fold increase in two decades, reaching ₹1.77 trillion in 2024-25.
• Fertilizer subsidies account for around 4% of the total union budget.

Reforming the Fertilizer Sector

• Structural reforms are needed to enhance efficiency, equity, and fiscal prudence in subsidy delivery.
• Past reforms include the 2012 New Investment Policy and the 2010 Nutrient-Based Subsidy (NBS) regime.
• Urea pricing remains low, leading to black marketing and misuse, while other fertilizers like DAP and MOP follow a market-linked subsidy framework.

Soil Health and Nutrient Use

• The imbalanced nutrient application ratio (10.9:4.4:1) deviates from the recommended 4:2:1, affecting soil health.
• Conventional urea has low nutrient use efficiency, contributing to environmental pollution.

Proposed Reforms

• Incorporating urea into the NBS framework with uniform subsidies could balance nutrient use.
• Encouraging alternative nitrogen sources and moderating DAP and MOP prices may correct nutrient imbalances.
• Direct Benefit Transfer mechanisms can improve subsidy targeting and efficiency.

Green Ammonia: A Sustainable Alternative

• Green ammonia, produced from renewable energy, can reduce dependency on imported natural gas and lower emissions.
• India's renewable capacity expansion supports the economic viability of green ammonia, with initiatives like SECI's procurement for 724,000 tonnes annually.
• This transition could decrease subsidy burdens and generate carbon credits under India's carbon credit trading scheme.

The fertilizer sector needs transformation to address structural issues and ensure efficient use of resources. Reform is essential to enhance soil health, farm productivity, and national food security.