Economic Survey 2026: Raise urea price, provide direct benefit transfers to farmers to curb overuse

The Economic Survey 2025-26 advised the government to increase the retail price of urea, which has remained unchanged at Rs 242 per 45 kg bag since 2018. This, the authors of the report noted, will discourage urea overuse, which has led to a serious soil health crisis over the years. 

The price change can be done while transferring an equivalent amount directly to farmers on a per-acre basis. “Farmers receive the same overall purchasing power, but the relative price of nitrogen moves closer to its agronomic cost,” it said.

Since March 2018, urea is sold to farmers at a subsidised maximum retail price (MRP) of Rs 242 a 45 kg bag and the subsidy incurred by the government is around 85-90 per cent. 

Flagging urea overuse and imbalance in use of overall plant nutrients over three decades, the Survey, highlighted that the ratio of nitrogen (N), phosphorus (P) and potassium (K) used by Indian farmers has drifted far from agronomic norms. Agronomic benchmarks for most crops and soil types suggested a ratio closer to 4:2:1.

In 2009-10, the N:P:K ratio stood at 4:3.2:1, close to recommended levels. By 2019-20 it had deteriorated to 7:2.8:1, and by 2023-24 had worsened further to about 10.9:4.1:1. 

“The divergence has been driven overwhelmingly by excessive nitrogen application, primarily through urea, which has become the dominant nutrient source across much of the country,” it highlighted. 

Excess nitrogen reduces soil organic matter, accelerates micronutrient depletion, weakens soil structure and increases nitrate leaching into groundwater. Over time, crops require progressively larger quantities of fertiliser to maintain yields, raising input intensity without commensurate output gains. 

To address this imbalance, the Survey, tabled in the Parliament on January 29, 2026 suggested deregulating urea prices and making direct cash transfer to farmers. 

“This changes behaviour in a predictable way. Farmers who already apply nitrogen efficiently gain because they receive the full transfer while spending less at the counter. Farmers who over-apply face a clear incentive to shift towards balanced fertilisation, soil testing, nano-urea, liquid fertilisers and organic amendments. Low-input farmers, particularly those growing pulses and oilseeds in rain-fed regions, experience a net income gain. The adjustment is therefore both progressive and efficiency-enhancing,” according to the report. 

However, one design challenge in the proposed reform was tenancy, the authors acknowledged. The direct benefit transfer, they highlighted, could accrue to landowners, instead of tenant farmers, potentially limiting the scheme’s immediate impact.