Cabinet approves new investment policy for Urea
The Cabinet Committee on Economic Affairs approved the National Investment Policy for Urea, 2026 (NIPU-2026), to attract fresh investment in domestic urea manufacturing.
The policy targets setting up 8-9 new gas-based brownfield and greenfield urea plants, each with a capacity of roughly 1.27 million tonnes per annum, to add a combined 10 million tonnes of domestic production capacity.
India's present urea consumption is around 40 million tonnes annually against domestic production of close to 30 million tonnes, with the shortfall met through imports.
The new plants may be set up by private sector players, public sector undertakings, or cooperatives, and the revised financial framework is projected to save more than ₹250 crore per plant compared with projects set up under the earlier investment policy.
NIPU-2026 replaces the New Investment Policy (NIP), 2012, whose investment window closed in October 2019 after facilitating six new urea units.
Urea's Exclusion from the Nutrient Based Subsidy (NBS) Scheme
India subsidises fertilisers through two parallel regimes. The Nutrient Based Subsidy (NBS) Scheme, implemented from 1 April 2010, decontrolled the retail prices of phosphatic and potassic (P&K) fertilisers — such as DAP and NPK complexes — and instead gives manufacturers a fixed per-kilogram subsidy on the nutrient content (Nitrogen, Phosphorus, Potassium, Sulphur), letting companies set market-based retail prices. Urea alone was kept outside the NBS regime and remains under statutory price control, with its Maximum Retail Price (MRP) fixed by the government rather than by the market.
Key Details
- NBS Scheme: effective 1 April 2010, administered by the Department of Fertilisers, covers 28-plus grades of P&K fertilisers.
- Urea's MRP has been kept low and government-fixed since decades of statutory control, unlike the NBS-based, indirectly-subsidised P&K fertilisers.
- This asymmetric pricing has long been flagged as a policy distortion: cheap, price-controlled urea encourages overuse relative to costlier P&K fertilisers, skewing the ideal Nitrogen-Phosphorus-Potassium (N:P:K) use ratio recommended by agronomists (ideally close to 4:2:1).
NIPU-2026 works within this urea-specific price-control architecture — it is an investment/production-side intervention (adding capacity) rather than a pricing reform, since urea's retail price is not being decontrolled or moved to the NBS system.
New Urea Policy (NUP), 2015 and Mandatory Neem Coating
The New Urea Policy, 2015, approved by the Cabinet, was designed to maximise indigenous urea production, promote energy efficiency in existing urea units, and rationalise the subsidy burden by linking subsidy payouts to energy-consumption norms for each plant. As part of the same reform push, the government made neem-coating of domestically produced urea mandatory.
Key Details
- Since January 2015, urea producers were permitted to neem-coat up to 100% of production, with a minimum of 75% of domestic urea production required to be neem-coated.
- Neem-coated urea releases nitrogen more slowly, reduces leaching-based groundwater contamination, improves crop yield efficiency, and is unsuitable for industrial diversion — curbing black-marketing of subsidised urea for non-agricultural use.
- The farmer-facing MRP was largely held constant, with only a small additional charge (roughly ₹14 per 50-kg bag) for the neem-coating premium over the base MRP (then around ₹268 per bag).
NIPU-2026 is the capacity-expansion counterpart to the 2015 reforms — while the 2015 policy addressed efficiency and diversion in existing plants, the 2026 policy targets the underlying production shortfall that still forces India to import roughly a quarter of its urea requirement.
Gas Pooling Policy and Uniform Delivered Gas Price for Urea Plants
Since natural gas is the primary feedstock for urea manufacturing, the government introduced a Gas Pooling Policy in 2015 to equalise the cost of gas across all Natural Gas Grid-connected urea plants, regardless of their distance from domestic gas sources. Under this mechanism, cheaper domestic gas is pooled with costlier imported Re-gasified Liquefied Natural Gas (R-LNG) so that every connected plant pays the same uniform delivered price, with GAIL acting as the administering aggregator.
Key Details
- Approved by the Cabinet Committee on Economic Affairs on 31 March 2015; operational guidelines notified by the Ministry of Petroleum and Natural Gas in May 2015.
- Aimed at making urea production costs comparable across plants and reducing the working-capital burden on R-LNG-dependent units.
- Urea plants' subsidy payouts are computed against a cost-plus formula (successively updated as NPS-III and Modified NPS-III) benchmarked to each plant's energy consumption norms.
Any new gas-based urea capacity added under NIPU-2026 will be priced and subsidised within this existing pooled-gas and energy-norm framework, meaning new plants' viability depends on continued uniform gas pricing and efficient energy-norm compliance.
India's Urea Import Dependence and Fertiliser Subsidy Administration
Despite being one of the world's largest urea producers, India imports a significant share of its annual requirement — historically procured through global tenders floated by nominated public-sector agencies. Fertiliser subsidy delivery itself has been digitised through Direct Benefit Transfer (DBT), and subsidised fertilisers (including urea, DAP, MOP and NPK) are now sold under a single government brand.
Key Details
- Domestic urea production (~30 million tonnes) meets roughly three-quarters of consumption (~40 million tonnes); the balance is imported, exposing India to global fertiliser price and supply-chain volatility.
- Since 2018, subsidised fertiliser sales require Aadhaar or Kisan Credit Card-based biometric authentication at retailer point-of-sale (PoS) machines linked to the Department of Fertilisers' e-Urvarak DBT portal before the subsidy is released to the manufacturer.
- Under the "One Nation, One Fertiliser" scheme (Pradhan Mantri Bhartiya Jan Urvarak Pariyojana), launched 17 October 2022, all subsidised fertilisers — urea, DAP, MOP and NPK — are marketed under the common "Bharat" brand.
NIPU-2026's 10-million-tonne capacity addition directly targets this import-dependence gap, aiming to reduce reliance on volatile global urea tenders while the DBT/PoS and common-branding architecture continues to govern how the resulting output reaches farmers.
- NIPU-2026: 8-9 new gas-based urea plants targeted, ~1.27 million tonnes annual capacity per plant, 10 million tonnes combined addition
- Current domestic urea production: ~30 million tonnes; annual consumption: ~40 million tonnes
- Projected savings under NIPU-2026: over ₹250 crore per plant versus the previous policy framework
- Predecessor policy — New Investment Policy (NIP), 2012: investment window closed October 2019; resulted in 6 new urea units
- NBS Scheme (for P&K fertilisers, not urea): effective 1 April 2010
- New Urea Policy, 2015: mandated minimum 75% (up to 100%) neem-coated domestic urea production
- Gas Pooling Policy for urea: approved 31 March 2015, guidelines notified May 2015, administered by GAIL
- One Nation, One Fertiliser (Bharat brand): launched 17 October 2022