Fertiliser Policy Reform Amid Hormuz Crisis: PM-KISAN, WTO Subsidies, and Art. 47-48 DPSP — CLAT Current Affairs

CURRENT AFFAIRS | 13 APRIL 2026

CLAT GK + ECONOMICS + CONSTITUTIONAL LAW

Agricultural economist Ashok Gulati, writing in The Indian Express, has made a forceful case for fundamental reform of India’s fertiliser policy in the wake of the Strait of Hormuz crisis. The article argues that the current crisis — which has seen global urea prices surge and disrupted supply chains — exposes a critical vulnerability in India’s agricultural system: the country’s heavy dependence on imported fertilisers, particularly urea. India consumes approximately 40 million tonnes of urea annually, of which roughly 10 million tonnes (about 25%) are imported, making the sector acutely vulnerable to geopolitical disruptions.

The Strait of Hormuz crisis, triggered by the ongoing conflict in the region, has sent shockwaves through global commodity markets. DAP (Di-Ammonium Phosphate) prices have risen from $622/tonne to $720/tonne, and urea prices are surging across international markets. For India, which already spends over Rs 2 lakh crore annually on fertiliser subsidies, the crisis threatens to blow up the subsidy bill further while simultaneously creating shortages that could affect the upcoming kharif sowing season.

Gulati’s central argument is that India must fundamentally restructure its fertiliser subsidy system. Currently, the subsidy is given to fertiliser companies (on the production/import side), not to farmers directly. Gulati advocates for a shift to the PM-KISAN model — where the subsidy (currently Rs 6,000/year per farmer) is given directly to farmers as a cash transfer, allowing market pricing of fertilisers. This direct benefit transfer (DBT) approach, he argues, would improve efficiency, reduce corruption, and allow farmers to make informed choices about fertiliser use. The article also highlights that India’s Nutrient Use Efficiency (NUE) is only about 35%, meaning 65% of applied nutrients are wasted — a massive inefficiency driven by the artificially low price of urea.

Constitutional Framework: DPSPs on Agriculture and Nutrition

India’s fertiliser policy is constitutionally anchored in several Directive Principles of State Policy (DPSPs). Article 47 directs the State to raise the level of nutrition and the standard of living of its people and to improve public health. Article 48 directs the State to organise agriculture and animal husbandry on modern and scientific lines, including improving breeds, preserving and improving livestock, and prohibiting the slaughter of cows and other milch and draught cattle. Article 43 directs the State to secure a living wage and decent standard of life for all workers in agriculture and industry.

These DPSPs, while not directly enforceable in courts (Article 37), have been used to justify major agricultural policies including fertiliser subsidies, minimum support prices (MSPs), food procurement, and the public distribution system (PDS). The constitutional mandate to ensure nutrition (Art. 47) and modern agriculture (Art. 48) provides the foundational basis for both the current subsidy regime and the proposed reforms.

The Subsidy Debate: Company-Based vs Farmer-Based

The core reform question raised by Gulati is whether India should continue giving fertiliser subsidies to companies or switch to direct cash transfers to farmers. Under the current system, the government fixes the maximum retail price (MRP) of urea at an artificially low level and compensates fertiliser companies for the difference between their cost of production/import and the MRP. This system has three major problems:

First, it creates a urea-centric bias. Because urea is heavily subsidised while other fertilisers (DAP, MOP, complex fertilisers) are under a less generous Nutrient Based Subsidy (NBS) scheme, farmers over-apply urea at the expense of phosphatic and potassic fertilisers. This distorts the N:P:K (Nitrogen:Phosphorus:Potassium) ratio from the ideal 4:2:1 to approximately 8:3:1 in many regions, degrading soil health over time.

Second, it leaks to non-agricultural uses. The artificially low price of urea leads to significant diversion to industrial uses and cross-border smuggling. Estimates suggest that 15-20% of subsidised urea never reaches farmers.

Third, it is fiscally unsustainable. The fertiliser subsidy bill has ballooned from Rs 70,000 crore in 2019-20 to over Rs 2 lakh crore, driven by rising global prices. The Hormuz crisis threatens to push this even higher, straining government finances.

Gulati’s proposed solution — shifting to a PM-KISAN-style direct benefit transfer — would address all three problems. Farmers would receive cash and buy fertilisers at market prices, incentivising balanced use and eliminating diversion. However, critics argue that sudden decontrol could cause price shocks, particularly for small and marginal farmers.

WTO and India’s Fertiliser Subsidy Obligations

India’s fertiliser subsidy reform has important international trade dimensions. Under the WTO Agreement on Agriculture (AoA), domestic support measures are classified into three categories. Amber box subsidies are trade-distorting measures (like price support, input subsidies) that are subject to reduction commitments. Blue box subsidies are production-limiting programmes that are partially exempt. Green box subsidies are non-trade-distorting measures (like research, pest control, environmental programmes) that are fully exempt from reduction commitments.

India’s fertiliser subsidy currently falls largely in the amber box, which is subject to WTO limits. The shift to a PM-KISAN-style direct cash transfer would potentially reclassify part of the subsidy as green box (decoupled income support), giving India more policy space while reducing WTO vulnerability. This is particularly relevant as developed countries have pushed for tighter amber box limits in WTO negotiations.