Cabinet May Back New Urea Investment Policy to Reduce Import Bill

The Union Cabinet is expected to consider a series of reforms for the urea sector at its meeting on Wednesday, including a new investment policy, revised norms for urea and the continuation of the fertiliser subsidy for FY26, according to a Business Standard report.

The proposed investment policy is aimed at increasing India's domestic urea production by around 9-10 million tonnes over the next eight years through the establishment of seven new greenfield and brownfield plants.

According to the report, each plant is expected to have an annual production capacity of about 1.27 million tonnes. The additional capacity could help reduce urea imports and generate annual subsidy savings of more than ₹10,500 crore, assuming imported urea prices remain around $345 per tonne.

Focus on Domestic Production

The new policy proposes an eight-year guaranteed buyback for urea produced by the new plants from the date commercial production begins, providing greater certainty for investors.

The government is also exploring the use of domestically produced ammonia from coal gasification as feedstock instead of imported liquefied natural gas (LNG). The move is aimed at reducing dependence on gas imports, particularly from Gulf countries, which currently account for a significant share of India's LNG supplies.

India imports about 26% of its annual urea requirement. The report, citing a recent ICRIER paper, said nearly 85% of the gas used in India's urea production is imported, with most of it coming from the Gulf region.

Policy Changes and Cost Estimates

The proposed investment framework assumes a project cost of around ₹11,000 crore for each greenfield unit and about ₹9,000 crore for brownfield projects. Sources told the publication that revisions to the exchange rate form one of the key changes in the updated policy, while the existing mechanism for revising gas prices is expected to remain unchanged.

The revised policy proposes lower floor and ceiling gas prices for both greenfield and brownfield projects compared with the 2012 investment policy, with the changes reflecting updated exchange rate assumptions.

The previous investment policy, introduced in 2012, helped establish six urea plants with a combined production capacity of more than five million tonnes before expiring in 2019. Since then, there has been no fresh investment framework for the sector, although the government approved a new ammonia-urea complex at Namrup in Assam earlier this year.