Fertiliser output may fall 10–15% if West Asia tensions persist: report

India’s fertiliser production could decline by 10–15% if disruptions linked to the ongoing West Asia conflict continue for several months, according to a report by Crisil Ratings.

The report warned that prolonged disruption in supplies of liquefied natural gas and ammonia could impact domestic output of urea and complex fertilisers during the crucial kharif season. However, the impact may be partly cushioned by a government directive allocating 70% of gas supplies to urea manufacturers.

India’s fertiliser sector remains heavily dependent on imports, with about 20% of urea and one-third of complex fertilisers such as DAP sourced from overseas. West Asia accounts for a significant share of these imports, including 40% of urea and DAP shipments in the first nine months of fiscal 2026.

Dependence is even higher for raw materials used in domestic production, with 60–65% of LNG and 75–80% of ammonia imports coming from the region. Natural gas alone makes up around 80% of the raw material cost for urea.

Crisil said existing inventory levels of about three months and the possibility of sourcing from alternative suppliers could help avoid immediate shortages. However, rising input costs and higher import prices are expected to increase working capital needs and push up the government’s fertiliser subsidy bill by Rs 20,000–25,000 crore.

The report added that reduced capacity utilisation could affect profitability, particularly for urea manufacturers, due to lower energy efficiency at sub-optimal production levels.

Overall, the subsidy requirement may rise by 12–15% from the initial estimate of Rs 1.71 lakh crore for FY27.

The report noted that timely government support and the ability of companies to secure alternative supplies will be key if disruptions persist.