Cabinet approves new investment policy for Urea

In a major push toward self-reliance in fertilizers, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved the National Investment Policy for Urea-2026. The policy aims to facilitate the establishment of eight new plants, generating an additional 10 million tonnes (mt) of output to completely offset India's current import dependence on the nitrogen nutrient. Open to public, private, and cooperative sector participation, the initiative is projected to pump up to ₹90,000 crore of fresh investment into the domestic fertilizer sector if targets are met.

With an annual capacity of 1.27 mt, a greenfield Urea plan entails an investment of $ 1.2-1.5 billion, while a brownfield unit with the same capacity may incur $ 900 million, industry sources said.

Briefing the media after the Cabinet meeting, Information and Broadcasting Minister Ashwini Vaishnaw said that the new policy would help set up 8-9 new plants and make the country achieve self-sufficiency in urea. “India’s import dependence has come down due to the addition of six new plants in the last decade. Creation of additional 8-9 new plants will help the country meet its complete requirement locally and make it Atmanirbhar in Urea,” Vaishnaw said.

Currently, India imports about 10 mt of urea, whereas the domestic production is about 30 mt against an annual demand of about 40 mt. Urea demand is rising at 5 per cent per annum due to changing crop patterns as well as higher foodgrain production, he said. Officials said that due to ethanol demand, maize area and its production have gone up substantially, so also demand for Urea to meet the crop’s optimum yield.

Under the policy, the government has separated fixed and variable costs for subsidy calculation and the Return on Equity (RoE) at a minimum of 12 per cent and a maximum of 16 per cent. Besides, forex risk mitigation is also there, he said, adding it will result in savings of ₹250 crore per plant.

In the last decade, India has added 6 new urea plants of 1.27 mt capacity, including two in the private sector and four through the revival of closed units. On the other hand, in the private sector, one plant has moved from urea to green ammonia production after being sold to a US-based company, and another plant in Uttar Pradesh was suspended operation in 2025.

Industry sources said that existing players who have been serving the urea sector face an uncertain future due to continuous tightening of energy efficiency norms, reducing the margins available. As the subsidy will be higher for new units under the 2026 policy, a CEO of a leading fertiliser company said: “It is very good for the new plants. But what about the old plants that are operating at very low margins.”

Since the urea subsidy takes into account the production costs, including a profit margin of about 12 per cent, some plants complain about either ‘no-profit-no-loss’ or even negative realisation.

Former Chairman and Managing Director of Rashtriya Chemicals & Fertilizers (RCF), RG Rajan, said: “The new policy marks a structural shift in India’s fertiliser policy framework as it ensures viable returns while progressively delinking fixed-cost recovery from dollar fluctuations. This also insulates the government from exchange-rate volatility.”

With urea’s import dependence at 27.5 per cent and 95 per cent of production based on natural gas, which is largely dependent on imported LNG, India needs a long-term strategy built on indigenous resources, said Balasaheb Darade, president of Gasification Technologies & Research Council of India. The policy rightly focuses on capacity expansion and modernisation, he said, adding it presents a strong opportunity to promote coal gasification-based urea production.

According to SS Sundaram, partner (government and public sector) at EY India, every million tonne of domestic urea capacity that replaces imports can roughly save $300-500 million per year. “This would also create 20,000-30,000 jobs during const...