Fertiliser Output Shrinks 12.4% in August, Sixth Straight Fall, as Gas and Sulphur Shortages Bite

The news

New Delhi. Fertiliser production contracted for the sixth consecutive month, declining 12.4% year-on-year in August compared with an 8% contraction in July, according to the core-sector data released on Monday, September 21, The Economic Times reports. The core sector is a set of basic industries — now nine, including coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, electricity and, newly, iron ore — whose combined output is tracked each month; the Express notes the data is released by the Department for Promotion of Industry and Internal Trade. Overall core-sector growth eased to a three-month low of 4.8% in August, from 5% in July and 6.2% in August 2025. August is the third release under the revised index with 2022-23 as the base year, replacing 2011-12. Madan Sabnavis, chief economist at Bank of Baroda, attributed the fall in fertiliser output to the slowdown in the sowing season and higher imports. Devendra Pant, chief economist at India Ratings and Research, said “supply-side issues, ie, reduction of gas supply and high energy cost, have been adversely impacting fertiliser production, following the West Asia conflict outbreak”. Natural gas production declined 4.9% in August, coal 3.8% and crude oil 3.6%, while cement grew 12.5% and electricity 11.6%. The core sector carries a 40.27% weight in the Index of Industrial Production. The Indian Express editorial today explains why fertilisers are exposed. Sulphur recovered at refineries and gas plants is converted into sulphuric acid, which is needed to turn rock phosphate into water-soluble single super phosphate, di-ammonium phosphate (DAP) and other phosphorus-bearing complex fertilisers. Sulphur, which India imported at $200 or less per tonne in normal times, now costs $1,000 and above, because attacks on energy infrastructure in Russia and the Persian Gulf have knocked out refining capacity. The editorial says India has managed to import enough urea and liquefied natural gas for domestic urea production, but that imports and domestic manufacture of phosphatic and complex fertilisers have been “severely constrained”. An opinion article in The Economic Times adds that gas-to-urea fertiliser spreads are already at five to ten times their regular values and could rise further, hurting India’s subsidy bill. The syllabus link is agricultural inputs, subsidies and energy security. The sulphur price surge was carded on September 21; the new development is the production data.

Static syllabus linkage

1. The Index of Core Industries is a monthly lead indicator for industry. The Index of Core Industries is compiled by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade and released about a month after the reference month, before the Index of Industrial Production. The Economic Times reports that its base year has been revised to 2022-23 from 2011-12 and that iron ore has been added, making nine industries. The core industries together carry a weight of 40.27% in the IIP, so a slowdown in them usually foreshadows weaker industrial growth.
2. Urea and phosphatic fertilisers are subsidised under two different regimes. Urea is sold at a statutorily controlled maximum retail price, and the government pays manufacturers the difference between cost and that price, so a rise in gas cost raises the subsidy rather than the farm price. Phosphatic and potassic fertilisers such as DAP have been under the Nutrient Based Subsidy scheme since April 1, 2010, under which a fixed subsidy is paid per kilogram of nutrient and retail prices are, in principle, open. The Department of Fertilizers in the Ministry of Chemicals and Fertilizers administers both, and fertilisers are regulated under the Fertiliser (Control) Order, 1985 issued under the Essential Commodities Act, 1955.
3. Natural gas is the feedstock for urea, sulphur the key for phosphates. Urea is made by reacting ammonia, produced from natural gas, with carbon dioxide, so gas is both the fuel and the raw material. Phosphatic fertilisers need phosphoric acid, made by treating rock phosphate with sulphuric acid, which is why the price of sulphur, a refinery by-product, matters so much. India imports most of its rock phosphate and phosphoric acid and a large share of its DAP, making phosphatic supply more import-dependent than urea.
4. Rabi demand for DAP peaks in October–November. The rabi season’s main crops, wheat, mustard and gram, are sown from October to December, and DAP is typically applied at sowing as a basal dose for phosphorus. Any shortfall in DAP stocks in October therefore affects sowing decisions directly. Farmers who cannot find DAP often switch to single super phosphate or complex fertilisers, or apply less phosphorus, with consequences for yields and soil nutrient balance.

Why UPSC loves this

1. Agricultural inputs and subsidies are named in GS3. The GS3 syllabus covers direct and indirect farm subsidies and issues related to the public distribution and supply of inputs. Fertiliser subsidies are one of the largest items of central subsidy, and Mains has asked about the imbalance in nutrient use and the reform of fertiliser pricing.
2. Prelims asks about schemes and the index, not monthly growth. Expect questions on the Nutrient Based Subsidy scheme, the difference between urea and DAP pricing, neem-coated urea, the Index of Core Industries and which body compiles it. The August contraction figure itself is not examinable.
3. Energy security and food security meet in this story. The Express editorial’s argument that the current crisis is about refineries and sulphur rather than crude oil gives candidates a fresh angle on energy security. A Mains answer that traces how a war in West Asia reaches a wheat field in Punjab through the price of sulphur is exactly the inter-linkage the examiner looks for.

Analysis

1. Six months of contraction is a supply problem, not a demand dip. Mr. Sabnavis points to a slower sowing season and higher imports, which would suggest demand is simply being met from abroad. But six consecutive months of falling production, deepening from 8% to 12.4%, coinciding with a gas and sulphur crisis, fits Mr. Pant’s supply-side explanation better. If the problem were only seasonal demand, production would not keep falling as the rabi season approaches. Both views can be partly right: domestic plants are squeezed by cost, and imports fill some of the gap at a higher price.
2. Urea is protected by the subsidy design; DAP is not. Because urea’s retail price is fixed and the government absorbs cost increases, farmers are insulated from the gas shock, and the editorial says urea and LNG imports have been adequate. DAP is under a fixed per-nutrient subsidy, so when sulphur and phosphoric acid costs rise, either companies absorb losses, the government raises the subsidy, or supply shrinks. This asymmetry explains why the phosphatic segment is where the shortage appears first, and it also pushes farmers to overuse the cheaper nitrogen, worsening nutrient imbalance.
3. The subsidy bill will rise, and the fiscal choice is political. If gas-to-urea spreads are at five to ten times their regular values, as the Economic Times opinion article says, the cost of keeping urea prices unchanged rises steeply. The government can raise the subsidy, cut other spending, or pass on part of the cost; in practice it is unlikely to raise farm prices before or during a sowing season. The counter-view is that this crisis is temporary and that the fiscal cost is a price worth paying to protect food production, which is a reasonable position if the conflict ends soon.
4. The crisis strengthens the case for domestic alternatives, but they are slow. Nano fertilisers, organic manures, better use of domestic sulphur and phosphate sources, and precision application can reduce import dependence over time. None can replace basal DAP for this rabi season. The lesson is to build strategic reserves of key raw materials such as phosphoric acid and to diversify supply contracts before the next shock, since fertiliser is as strategic as crude oil for a country that feeds 140 crore people.
5. The Maharashtra drought and the fertiliser squeeze compound each other. Farmers who have lost kharif crops to drought enter the rabi season with less cash and must now face scarcer or costlier phosphatic fertiliser. Weak rural incomes and tight inputs together could reduce rabi area or yields in affected regions. Policy that treats drought relief and fertiliser supply as separate departments’ problems will miss this interaction; timely input subsidy and priority allocation of DAP to drought-hit districts would address both.

Administrator's brainstorm