Fertilizer Subsidies, Market Access, and the Efficiency of Input Use in Indian Agriculture

How do internal trade costs shape input choice when subsidy protection differs across inputs? This paper studies this question in the context of India’s fertilizer regime, where urea is sold at an administered price while phosphatic and potassic fertilizers remain more exposed to import dependence and inland transport costs. I show that geography changes the composition of fertilizer use, not simply its level. Using district–crop data from India’s Cost of Cultivation Survey, I find that a one-log-point increase in distance to the nearest major fertilizer import port raises nitrogen’s share of total fertilizer use by 5.8 percentage points and reduces potassium’s share by 6.3 percentage points in the preferred post-2010 specification, while total fertilizer intensity shows no statistically significant gradient. In the 2015–2019 cross-section, moving from the nearest to the most remote port-distance quartile raises nitrogen’s share from 0.485 to 0.636 and sharply lowers potassium’s share. The main distortion is therefore compositional: geography and asymmetric policy interact to skew nutrient use toward nitrogen without reducing aggregate fertilizer use. Aheterogeneous-exposure pre/post comparison further shows that the remoteness gradient strengthened after the 2010 Nutrient Based Subsidy reform, when DAP and MOP prices were liberalized while urea remained price-compressed. The results imply that correcting nutrient imbalance requires reforming subsidy architecture, not only improving transport infrastructure.