Urea Subsidy
Why a bag of urea costs a fraction of what it costs to make
Picture a shop selling a product to customers at a fixed low price fixed by the government, while the government separately pays the shop the difference between that low price and the shop's actual cost. That is exactly how urea has been sold in India for decades.
The government fixes urea's retail Maximum Retail Price well below its actual cost of production or import, and pays fertiliser companies the gap directly as a subsidy, ensuring farmers can access this essential input at an affordable, politically sensitive price regardless of how much global fertiliser prices swing. Urea remains the single largest component of India's overall fertiliser subsidy bill by a wide margin, since it is used far more heavily than any other fertiliser.
This subsidy design has a well known side effect. Because urea is so much cheaper than other nutrients even after the Nutrient Based Subsidy is applied, Indian farmers tend to over apply it relative to phosphorus and potassium, a distortion policymakers have tried to address through measures like Neem Coated Urea rather than by removing the urea subsidy itself, which remains politically difficult to touch.