The global economy is going through a difficult phase due to the Iran–US–Israel conflict. Crude oil prices have surged by nearly 60 percent, and disruptions in the Strait of Hormuz have affected trade flows from West Asia. The impact of this conflict is being felt across economies worldwide, including India. India faces a greater challenge as it meets around 87 percent of its petroleum needs through imports. In this post-COVID phase, adverse conditions are emerging on both supply and inflation fronts. However, much like during the pandemic, the agriculture sector is once again proving to be a stabilizing force for the Indian economy. Favorable weather has led to bumper foodgrain production, and government stocks of wheat and rice are well above buffer norms. The ongoing rabi season also shows promising output prospects, offering some relief to policymakers by helping contain food inflation.

Yet, the situation is far from easy for farmers. The conflict has brought rising input costs and price uncertainty. Farmers are already grappling with declining agricultural prices. Economic indicators also suggest that the agriculture sector remains weak, with growth in agriculture and allied sectors projected at just 2.4 percent for FY 2025–26.

Compared to the oil shocks during the Gulf conflicts of the 1970s, the current crisis poses a greater challenge for agriculture. This is primarily due to the sector’s increased dependence on fossil fuels. Mechanization and changes in nutrient consumption patterns have intensified this dependence. In the 1970s, both mechanization and fertilizer usage were relatively low. Today, India consumes around 70 million tonnes of fertilizers annually, including 40 million tonnes of urea, 10 million tonnes of DAP, 15 million tonnes of complex fertilizers, and 5 million tonnes of SSP. About 10 million tonnes of urea are imported, while dependence on imports for DAP—both finished products and raw materials— is nearly total. Urea production relies on natural gas, and India imports over 50 percent of its gas requirements, largely from Gulf countries, whose supply routes are currently disrupted.

As a result, farmers may face a fertilizer shortage during the ongoing kharif season. Although the government claims that about 18 million tonnes of fertilizers are currently in stock, the kharif season alone requires nearly 35 million tonnes. How the remaining demand will be met through alternative sources remains uncertain. Prices of fertilizers and gas have already risen significantly. Increased mechanization has also raised dependence on diesel and electricity. Pesticide production relies on petroleum by-products, and with rising shipping and packaging costs, companies have indicated that pesticide prices may increase by 25 to 30 percent. Post assembly elections diesel prices are likely to be increased and will add input cost for farmers.

Rising shipping costs and halted exports to Gulf countries are also impacting the prices of several agricultural commodities. This has created a double burden for farmers. Banana and onion growers are directly affected, while disruptions in exports of basmati and non-basmati rice, spices, fruits, vegetables, and meat will further strain farm incomes. Gulf countries account for a significant share of India’s approximately $50 billion agricultural exports.

The most serious concern, however, is on the fertilizer front. This issue is explored in detail in this edition of Rural World, including insights from K.J. Patel, Managing Director of IFFCO, the world’s largest fertilizer cooperative. He discusses fertilizer consumption trends, strategies to reduce import dependence, and measures to lower the use of chemical fertilizers. Additionally, a report from Assam highlights how agriculture is transforming in Northeast India.

It is undeniable that the Gulf conflict will affect the country’s economy and all sections of society. Agriculture has traditionally provided resilience by ensuring food security. However, the sector itself is now under stress, and there appears to be no comprehensive policy response from the government. Controlling fertilizer prices alone will not suffice. While the government has announced support packages for exporters and introduced Production-Linked Incentives (PLI) to boost manufacturing self-reliance, a similar holistic policy framework is missing for agriculture.

There is a pressing need for a comprehensive incentive policy for the agriculture sector. Such measures would not only strengthen the sector but also enhance India’s self-reliance, ensuring that the country is better prepared to withstand uncertainties arising from conflicts or global disruptions in the future.