India’s agri business has always had two owners who cannot be trusted in any way. The sky above and the sea below. But this year, while the farmers are keeping one eye on the monsoon clouds, the market is keeping the other eye on a place more than 2,000 kilometers away which is becoming difficult to pass through. For an industry that has always been praying for rain, praying for peace in the ‘Homurz Strait’ has become a new problem, which no one wanted.
There is pressure on the supply of fertilizer in India due to obstruction in sea shipping routes due to the ongoing war in West Asia. Due to this, concerns about decreasing agricultural production and increasing prices of food items have increased. This crisis has made it clear how much India is dependent on other countries for things related to agriculture. Being the second largest user of fertilizer in the world, India depends on the Gulf countries for raw materials and finished products. Of these, the more important consignments have to pass directly through the troubled ‘Homurz Strait’.
The timing of this disruption could not have been worse for Indian farmers. India Meteorological Department (IMD) gave a worrying information last Friday. It has maintained its forecast of below average monsoon in 2026. This weather monitoring organization has warned that a weather pattern named ‘El Nino’ (which literally means ‘child’) is rapidly making its place in the Equatorial Pacific Ocean. There is a 92 percent possibility that this will dominate the critical season from June to September. Total rainfall has been estimated at only 90 percent of the long term average. In such a situation, the country is on the verge of facing its weakest monsoon in more than a decade.
PM Modi’s appeal
Now, sowing of essential summer crops like rice, maize and soybean is starting this month. To meet this seasonal demand, the government will have to immediately procure urea through global tender. According to Bloomberg, global urea prices have increased because 45 percent of the world’s supply passes through the Persian Gulf. India recently bought 2.5 million tonnes of urea, at almost double the pre-conflict prices.
This financial pressure explains Prime Minister Narendra Modi’s recent appeal for savings, in which he not only asked citizens to reduce petrol and diesel consumption. He also urged farmers to reduce the use of chemical fertilizers by half. The Prime Minister stressed on immediate adoption of natural farming methods to ensure long-term health of the soil. This appeal exposes a serious truth for the national economy. Now only gold and crude oil are not increasing India’s import bill. Foreign fertilizers are also increasing the trade deficit equally rapidly.
Import bill is continuously increasing
Manas Majumdar, leader of Oil & Gas, Fuels and Resources at PwC India, said in the ET report that India is facing a ‘vicious cycle’. In an emailed response to a media report, he said that the skyrocketing cost of fertilizer imports, apart from the burden of fertilizer subsidy, is increasing India’s import bill and widening the trade deficit, which is impacting the rupee. India’s total fertilizer-related forex expenditure in fiscal year 2025-26 was about $27 billion, and is expected to rise to more than $33 billion if the crisis in West Asia continues throughout the year.
He presented a serious picture of the increasing financial pressure on India. Along with the increasing fertilizer bill, there is also huge pressure due to oil imports. Every $10 increase in the price of a barrel of oil adds $18 billion to India’s import bill. As a result, the current account deficit (CAD) is expected to double this fiscal year to 1.52.0 percent of GDP. This deficit is further worsened by foreign capital outflow of $17 billion to $18 billion. As a result, India faces an estimated balance of payments deficit of $50 billion to $65 billion. This is the third consecutive year when India’s account is in deficit, which is a rare and worrying situation.
pressure on rupee
The rupee has already weakened significantly in the last one year. This currency has fallen from around $85 to more than $95 against the US dollar. This prolonged conflict will make the currency’s decline even worse. Majumdar said that if the conflict continues in West Asia, the rupee is expected to rise towards 100 against the dollar, which will further increase the cost of essential imports and increase inflationary pressure.
Prices of urea and DAP doubled
Buying expensive fertilizers is only half of the fiscal challenge. Protecting farmers from those prices is the second part. Because the government decides retail prices for the protection of farmers, when prices increase in international markets, the central government itself has to bear the difference in prices. This increasing burden makes it difficult for India to meet the fiscal deficit target of 4.3 per cent of GDP, especially when last year’s deficit was already around Rs 1516 lakh crore.
The ongoing crisis in West Asia is increasing the cost of imports everywhere. According to CRISIL Intelligence, import prices of urea and DAP (di-ammonium phosphate) have recently increased to around $950 per metric tonne, which represents an increase of 123 per cent for urea and 39 per cent for DAP compared to the days before the conflict began.
loss of Rs 3 lakh crore
Energy prices are making this situation even worse. Majumdar said that due to the increase in LNG prices to $ 20 per MMBTU, the monthly subsidy payment has doubled from its expected pace. If these high prices persist till the four-month monsoon season, Majumdar expects an additional burden of Rs 40,000,60,000 crore in this short period alone. According to media reports, this loss can increase up to Rs 3 lakh crore.
Crisil Intelligence Director Pushan Sharma said in a media report that due to these increased prices of raw materials, the total fertilizer subsidy expenditure is expected to increase to Rs 2.753 lakh crore, which will completely dwarf the budgetary estimate of Rs 1.7 lakh crore. Sharma warned that this could lead to an additional fiscal burden of Rs 1 lakh crore in this financial year, which would increase the pressure on the fiscal deficit compared to last year.
Fiscal deficit will increase
Majumdar agreed that on a full-year basis, the total subsidy bill would easily cross the Rs 3 lakh crore mark—which is 75 per cent more than the budget estimate. He warned that the situation will worsen due to the average price of Brent crude being $ 95100 per barrel, which will reduce the dividend received from government oil companies. When the situation returns to normal, Majumdar estimates that the total fiscal deficit will increase by 50 basis points, taking the final deficit to 4.7-4.8 percent of GDP. ICRA estimates that the fertilizer subsidy bill of Rs 1.71 lakh crore fixed in the budget for financial year 2027 may exceed by about Rs 50,000 crore. According to Aditi Nair, Chief Economist of ICRA Limited, this will be almost completely compensated by the additional earnings from increase in custom duty on gold and silver.
Expenditures increased by 63 percent in 2023
The Indian government has always protected farmers from geopolitical shocks. For example, in FY23, expenditure on fertilizer subsidies increased by 63 per cent to Rs 2.51 lakh crore during the Russia-Ukraine war. Sharma said that the current situation is more challenging because the government is also supporting fuel prices and is working to stop the rupee from falling against the dollar. Besides, availability of fertilizer is also being ensured. He said that despite these pressures, the government will continue to provide subsidies to farmers by bearing the higher costs themselves.
Increase in kitchen budget
While on one hand the government is fighting this battle on its balance sheet, on the other hand this long-lasting crisis may have the biggest impact on the kitchen budget. Majumdar said that due to possible increase in fertilizer prices and prolonged decline in fertilizer imports, food inflation may increase in the coming months. If the monsoon remains weak due to El Nino, this problem may increase further as was seen in 2023, when food inflation reached 11.5 percent due to lack of monsoon. For now, government fertilizer subsidies are keeping prices under control. Apart from this, the government has increased the supply of domestic fertilizer from its stock by about 12 percent year-on-year to about 200 lakh metric tons.
90 percent monsoon forecast
He said that in the coming Kharif sowing cycle, huge pressure is being seen from both the sides. On the climate front, the IMD has predicted below normal south-west monsoon which will be 90 per cent of the long term average (LPA). On the logistics front, there has been a massive 95 per cent decline in shipping traffic due to the blockade in the Strait of Hormuz. Due to this, the trade of 30-40 lakh tonnes of fertilizer has stopped every month. According to him, this fertilizer is not able to reach India. Therefore, if the availability of fertilizer does not improve soon, it could have a very bad impact on the sowing season.
Buffer exists for Kharif
The good thing is that India still has enough buffer stock, so there is no need to panic right now, although time is passing fast. Nair of ICRA said that the current stock of fertilizer seems sufficient for the upcoming Kharif sowing cycle. However, we are concerned about the availability of fertilizer for the Rabi season, especially if the ongoing conflict in West Asia continues for a long time. Now a lot depends on how long this struggle continues. Analysts believe that as soon as shipping movement returns to normal, the supply chain will also stabilize within a few weeks.
