India: NBS subsidies and urea pricing

India ranks as the world's second-largest nitrogen market and among the biggest importers of prilled urea. Its subsidy framework rests upon two separate mechanisms: a fixed maximum retail price (MRP) for urea, and a Nutrient Based Subsidy (NBS) scheme for other fertilisers. This duality shapes supply, demand and trade flows across the subcontinent.

Urea price capping

For more than a decade, the Indian government has enforced an unchanged maximum retail price for urea, effectively subsidising the gap between production or import costs and the price paid by farmers^[1]. This approach targets food security for a vast population. Urea, containing 46 % nitrogen, remains the dominant nitrogen product owing to its comparatively low transport cost per unit of nutrient^[2][3].

Global nitrogen consumption is forecast to rise by 6 % between 2020/21 and 2025/26, with growth chiefly driven by Asian markets. East Asia and South Asia serve as key engines, propelled by public policies in China and India^[1]. India continues to rely heavily on urea imports, unlike China, which meets its nitrogen requirements through domestic output^[2][3].

The NBS regime for other fertilisers

Phosphate, potash and compound fertilisers fall under the NBS arrangement, where subsidy levels fluctuate according to nutrient content (N, P₂O₅, K₂O) and international prices. This mechanism provides flexibility lacking in the urea system. India's consumption support policies, together with Chinese export restrictions, exert lasting influence over global nitrogen market balances^[1].

Impacts on the world market

Export curbs imposed by China since 2021 have detached Chinese urea prices from global benchmarks, resulting in market fragmentation^[4]. Meanwhile, Indian purchasing demand bolsters international prices during procurement seasons. The correlation between grain prices and urea values accounts for roughly 50 % of long-term urea price movements, highlighting the interdependence of agricultural and fertiliser markets^[5].

World urea output reached 195.5 Mt in 2023, up 6.1 % from 2022; this increase was partly underpinned by new capacity coming on stream in India, Russia and Nigeria^[3]. Nevertheless, India maintains a structural shortfall met through imports, making its subsidy policies a decisive factor for global supply-demand equilibrium.