Cabinet Clears National Investment Policy for Urea-2026 to End India's Import Dependence

The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved the National Investment Policy for Urea-2026, laying out a roadmap to establish 8–9 new urea plants across the country. The initiative targets an additional 10 million tonnes (mt) of annual production capacity — precisely equal to India's current import volume — with the explicit goal of achieving complete self-sufficiency in the nitrogen nutrient.

The policy is open to participation from public sector undertakings, private companies, and cooperatives alike. If all planned capacity is commissioned, the initiative is expected to mobilise up to ₹90,000 crore in fresh domestic investment. Briefing reporters after the Cabinet meeting, Information and Broadcasting Minister Ashwini Vaishnaw described the initiative as a continuation of the momentum built over the last decade, when six new urea plants were added. "Creation of additional 8–9 new plants will help the country meet its complete requirement locally and make it Atmanirbhar in Urea," he said.

India's urea arithmetic is stark: domestic production stands at roughly 30 mt against annual demand of about 40 mt, leaving a 10 mt gap that is currently filled by imports. That gap is not static — urea demand is expanding at 5 per cent per annum, driven by shifting crop patterns and rising foodgrain output.

A notable demand driver flagged by officials is the rapid expansion of maize cultivation linked to India's ethanol programme. As maize acreage and production have climbed, so has the crop's urea requirement to sustain optimum yields.

On the supply side, 95 per cent of domestic urea production relies on natural gas, much of it imported LNG, exposing the sector to global energy price volatility. Balasaheb Darade, president of the Gasification Technologies & Research Council of India, noted that India's long-term strategy must be built on indigenous resources and argued that the policy presents a strong opportunity to scale up coal gasification-based urea production.

Industry sources indicated that a greenfield urea plant with an annual capacity of 1.27 mt requires an investment of $1.2–1.5 billion, while a brownfield unit of identical capacity may cost around $900 million.

A key structural feature of the Urea-2026 policy is the separation of fixed and variable costs in subsidy calculations — a departure from the existing framework that has been criticised for blurring cost accountability. The policy also sets a Return on Equity (RoE) floor of 12 per cent and a ceiling of 16 per cent, giving prospective investors a defined return corridor.

Forex risk mitigation provisions are also embedded in the framework and are expected to deliver savings of ₹250 crore per plant, according to the government.

RG Rajan, former Chairman and Managing Director of Rashtriya Chemicals & Fertilizers (RCF), called the policy "a structural shift in India's fertiliser policy framework," noting that it ensures viable returns while progressively delinking fixed-cost recovery from dollar fluctuations — insulating the government from exchange-rate volatility in the process.

According to SS Sundaram, Partner (Government and Public Sector) at EY India, every million tonne of domestic capacity that displaces imports can save $300–500 million per year in foreign exchange, while generating 20,000–30,000 jobs during construction and around 50,000 direct and indirect jobs once operational.

While new entrants stand to benefit from the policy's more generous subsidy terms and guaranteed returns, incumbent urea manufacturers are sounding the alarm. Industry sources say existing plants are already operating under continuous pressure from tightening energy efficiency norms, which progressively compress the margins available under the current subsidy structure.

The CEO of a leading fertiliser company put the concern bluntly: "It is very good for the new plants. But what about the old plants that are operating at very low margins?"

Because urea subsidies are calibrated to production costs plus a profit margin of approximately 12 per cent, some plants report either a no-profit-no-loss situation or even negative realisation on their output — a commercially unsustainable position that the Urea-2026 policy does not directly address for legacy assets.

Further complicating the sector landscape, one private plant has already exited urea production in favour of green ammonia following its sale to a US-based company, while another plant in Uttar Pradesh suspended operations in 2025 — underscoring the fragility of margins at the tail end of the existing fleet.