Determinants of Demand for Fertilizer: A Case for India

In India, agriculture contributes 14 percent to GDP and provides subsistence to two-thirds of the population. One of the top priorities of the Indian government is to provide food security to more than 1.25 billion people. Hence, increasing farm productivity is viewed as a primary goal for the government. Agricultural growth, with its forward and backward links to the industry and service sectors, is directly linked to India’s economic growth. Using national time-series data, this study estimates a demand function for fertilizer using a simple linear regression model and explores the relationship between demand and various non-price factors. The results from the regression analysis found that non-price factors are more important than the price of fertilizer in determining fertilizer demand. This study recommends that to increase agricultural output, government subsidy policies need to be geared toward the use of balanced nutrients for improving soil conditions, at the same time, provide an incentive to fertilizer manufacturing firms to develop new environmentally-sustainable products for agriculture.