The government has approved a new National Investment Policy for Urea (NIPU-2026), the first in nearly 14 years. The policy aims to stimulate investments in eight to nine new gas plants, both Greenfield and Brownfield, with a total production capacity of 10 million tons (MT).
Policy Needs and Objectives
Minister of Information and Broadcasting Ashwini Vaishnaw told journalists after the Cabinet meeting that India's urea consumption is about 40 million MT, while domestic production reaches approximately 30 million MT, with the shortfall being covered by imports. The new policy is designed to eliminate this deficit and ensure the country's self-sufficiency in urea production.
Changes in Investment Structure
The proposed capacity expansion plan will involve private, public enterprises, as well as cooperatives. This investment base is an updated version of the 2012 New Investment Policy (NIP). Key changes compared to the 2012 policy include the separation of fixed and variable costs to enhance transparency, the introduction of a return on equity range with a minimum threshold of 12% and a maximum of 16%, and the reduction of currency risks by converting fixed expenses into rupees over four years based on prevailing exchange rates.
According to the Ministry of Fertilizers, these measures will allow for savings of over 250 crore rupees on each plant established under NIPU-2026 compared to NIP-2012.
Economic Impact and Employment
Each of the planned 8-9 plants will have an estimated annual capacity of about 1.27 million MT. According to EY India data, every million tons of domestic urea production replacing imports can save between $300 and $500 million annually in foreign exchange expenditure, while simultaneously reducing the subsidy burden on imported urea.
Satyam Shivam Sundaram, a partner at EY India in the public and social sector, noted that this increases confidence in investing in modern, efficient, and environmentally responsible production facilities. Furthermore, the construction of these plants will create between 20,000 and 30,000 jobs, as well as about 50,000 direct and indirect jobs.
Terms and Pricing
Sources report that the new policy provides benefits for eight subsequent years for plants commissioned within five years of notification, including the possibility of guaranteed buyback. Geopolitical tensions, which disrupted imports and caused price hikes, have spurred the increase in domestic urea production.
Another significant change concerns the accounting for exchange rate fluctuations. The provision for revising basic and ceiling prices for gas remains in effect if the delivered gas prices change by $0.1 per MMBTU. For Greenfield and brownfield projects, a base gas price of $281 per ton of urea is proposed (compared to $305 under the previous policy), and the upper limit is reduced to $301 from the previous $335. For Brownfield and expansion projects, the base price is set at $263 per ton versus $285 under the 2012 policy, and the upper limit is reduced to $283 from $310. These adjustments align with exchange rate changes. Sources estimate the approximate cost of a Greenfield project to be around 11,000 crore rupees, and for Brownfield, 9,000 crore rupees, based on the rupee-dollar exchange rate of 90.
Current Industry Status
Data shows that under the old NIP 2012 policy, which expired in October 2019, six new urea units were built, including four through joint ventures of state-owned companies and two by private firms. Currently, 33 urea production units are operating in India with an assessed/installed capacity of 26.94 million MT.
Balasaheb Darade, President of Gasification Technologies & Research Council of India (GTRC-India), emphasized that since urea demand approaches 40 million MT, and import dependence is 27.5%, with 95% of production relying on natural gas largely dependent on imported LNG, India requires a long-term strategy based on domestic resources. Demand is projected to exceed 45 million MT, and more than 82% of urea plants in India, or 27 out of 33 operating units, are older than 25 years.
India imports about 26% of its annual urea requirement, putting pressure on the exchequer amid disruptions related to the Middle East crisis. At the peak of the crisis, some estimates placed the fertilizer subsidy in India for FY27 at approximately 3 trillion rupees. If this had occurred, it would have exceeded the record 2.51 trillion rupees spent in FY23 and surpassed the budget estimate for FY27 of 1.79 trillion rupees by more than 67%, or about 1.29 trillion rupees. However, subsidy forecasts have recently softened following China's decision to ease export restrictions and India's efforts to build adequate reserves to meet short-term demand.
