CAG begins two-year audit to check urea diversion, plug subsidy leakages

The CAG has identified 169 districts across 15 states where urea consumption is significantly above the respective state averages and the national average of 180kg per hectare

The Comptroller and Auditor General (CAG) has begun a detailed audit to examine the reasons for higher urea consumption and assess the efficiency of the fertilizer subsidy system, according to two government officials.

The national auditor has identified 169 districts across 15 states where urea consumption is significantly above the respective state averages and the national average of 180 kilogramme per hectare.

Uttar Pradesh accounted for the highest number of the 169 districts, at 37, followed by Tamil Nadu and Bihar with 16 each. Gujarat and Punjab had 14 districts each.

The audit comes amid the Centre’s rising burden of urea imports and concerns about the diversion of subsidized fertilizer. The Centre disbursed ₹2.17 trillion in fertilizer subsidies in fiscal year 2025-26 (FY26), up from ₹1.77 trillion in FY25, according to the ministry of chemicals and fertilizers’ reply to the Rajya Sabha on 11 August 2026.

Urea subsidy alone accounted for ₹1.42 trillion of the FY26 disbursement, including ₹47,956 crore for imported urea, up from ₹21,000 crore in FY25.

Even in the current fiscal year, fertilizer subsidy expenditure is expected to exceed the budgeted allocation of ₹1.71 trillion, as the government has recently approved ₹62,370 crore in subsidies for phosphatic and potassic (P&K) fertilizers for the rabi 2026-27 season, against ₹37,952 crore in the previous rabi season.

“The audit findings would help the government plug leakages in the fertilizer subsidy system and curb the diversion of subsidized agricultural urea to non-agricultural industries,” said the first of the two officials cited above.

Since agricultural urea is subsidized without quantity caps linked to farm size or farmers’ income, there have been concerns about its diversion for industrial use. Technical-grade urea is used as a raw material in several industries, including resin and glue manufacturing, plywood fabrication, crockery production, cattle feed and commercial explosives, this official said.

“The audit is being done to identify gaps in demand assessment, distribution monitoring and end-use tracking, enabling better targeting of subsidies and ensuring that fertilizer meant for farmers reaches its intended beneficiaries,” the official added.

Punjab recorded urea consumption of 375.63kg per hectare in 2022-23, followed by Haryana at 323.96kg, Delhi at 281.45kg, Uttar Pradesh at 253.54kg and Bihar at 216.24kg, according to a Lok Sabha reply by the ministry of agriculture and farmers welfare, consumption was also above 180kg per hectare in Telangana (206.56kg) and Andhra Pradesh (197.45kg).

Mint's queries emailed to the CAG spokesperson remained unanswered.

Two-phase audit

The audit began in mid-2026 and will cover two financial years, FY27 and FY28. It will examine fertilizer demand assessment, supply planning, distribution, subsidy payments and the effectiveness of measures to promote balanced fertilizer use, they said.

It is likely to be completed around mid-2028, while the first phase of the audit is likely to be submitted by the winter session of Parliament in 2027.

“The first phase of the audit, covering 2026-27, will include an all-India performance audit of the fertilizer subsidy framework, focusing on the scientific basis of demand assessment, supply planning, prevention of diversion and distribution monitoring. It will also examine initiatives to rationalize urea consumption and encourage sustainable fertilizer use,” said the second official. Both the officials spoke on condition of anonymity.

The audit will also examine the cross-border diversion of urea, particularly in districts located along India's international borders. These include districts in Uttar Pradesh, Bihar, Punjab and Gujarat, among other states.

“The audit will also assess whether existing fertilizer-use practices and subsidy policies are aligned with environmental sustainability, including efforts to promote balanced nutrient application and reduce excessive dependence on urea,” the second officials added.

Production and management

The CAG will also conduct an information technology audit of the Integrated Fertilizer Management System (iFMS), said the second official. iFMS is the government's digital platform that tracks fertilizer production, imports, movement, stocks, retail sales through point-of-sale devices and subsidy releases to companies.

The audit will examine data integrity, system controls, transparency and accountability. The audit will also assess whether existing fertilizer-use practices and subsidy policies are aligned with environmental sustainability, including efforts to promote balanced nutrient application and reduce excessive dependence on urea.

Another area of scrutiny will be domestic urea production and energy efficiency. The CAG has selected 13 of the country's 36 urea plants for detailed examination, focusing on production costs, subsidy calculations, energy consumption and the financial and environmental impact of manufacturing.

The audit will also examine the country's efforts to achieve self-sufficiency in urea production. Although six plants established under the New Investment Policy, 2012, have been commissioned, domestic output remains below consumption.

India's urea production declined to approximately 29.33 million tonnes in FY26 from 30.70 million tonnes in FY25, while consumption increased to 39.66 million tonnes from 38.79 million tonnes. Imports consequently rose to 10.35 million tonnes in FY26 from 5.6 million tonnes a year ago, according to the ministry of chemicals and fertilizers' reply to the Lok Sabha on 24 July 2026.

In FY28, the audit will examine urea import planning and procurement, transportation arrangements and freight subsidies, as well as implementation of the Fertilizer Control Order, 1985, which governs fertilizer quality, standards, licensing and enforcement.

About the Author

Dhirendra Kumar is a seasoned policy reporter with about 20 years of experience in deep, on-ground reporting across key economic and governance sectors. His work spans finance, public expenditure, disinvestment, public sector enterprises, textiles, trade, consumer affairs, and agriculture, with a strong focus on uncovering structural policy shifts and their real-world impact.<br><br>Kumar has been awarded the Chaudhary Charan Singh Award for Excellence in Journalism in Agricultural Research and Development, recognising his contribution to reporting on critical issues in the farm sector. He has also been a recipient of a fellowship in international trade from the National Press Foundation, which has further strengthened his coverage of global trade dynamics and their implications for India.<br><br>Kumar is known for breaking complex policy developments into clear, accessible stories. His reporting focuses on uncovering under-reported trends, explaining policy shifts, and helping readers stay informed about developments that shape India’s economic landscape.