New investment policy offers improved returns, lower forex risk and stronger incentives for greenfield gas-based urea plants, with industry experts calling it a major step towards fertilizer self-reliance

In a significant move to strengthen India’s fertilizer security and reduce dependence on imported urea, the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has approved the National Investment Policy for Urea-2026 (NIPU-2026). The new policy is designed to attract fresh investments in domestic gas-based urea manufacturing while advancing the country’s broader Atmanirbhar Bharat agenda.

NIPU-2026 replaces the earlier New Investment Policy (NIP)-2012, introducing a more investor-friendly framework aimed at accelerating capacity creation and improving the financial viability of new urea projects. The government expects the policy to stimulate investments in greenfield manufacturing facilities that will help bridge the persistent gap between domestic production and national demand. Among the key reforms is the separation of fixed and variable production costs to improve pricing transparency and operational efficiency. The policy also introduces a Return on Equity (RoE) framework ranging from 12 percent to 16 percent, providing investors with greater clarity and predictable returns. In addition, foreign exchange risks will be substantially reduced by converting fixed costs into Indian rupees after four years using prevailing exchange rates, limiting exposure to currency fluctuations.

According to the government, these structural changes are expected to generate savings of more than Rs 250 crore for every urea plant established under NIPU-2026 compared with projects commissioned under the 2012 policy framework. The new policy extends financial support to all future gas-based urea manufacturing projects, reinforcing the government’s objective of increasing indigenous fertilizer production while reducing reliance on overseas suppliers. India currently operates 33 urea manufacturing units with a combined reassessed installed capacity of 269.42 lakh metric tonnes (LMT). Despite significant capacity additions over the past decade, domestic production continues to fall short of consumption, necessitating substantial imports every year.

The Department of Fertilizers had previously introduced NIP-2012 to encourage investments in greenfield, brownfield, expansion, revival and modernization projects. That policy facilitated the establishment of six new urea plants before the investment window closed in October 2019. With several new investment proposals now under consideration, the government believes an updated policy framework is essential to unlock the next phase of capacity expansion. Commenting on the significance of the policy, Satyam Shivam Sundaram, Partner – Government and Public Sector, EY India, said the initiative sends a strong signal that India is committed to building long-term self-reliance in critical agricultural inputs. “By encouraging significant new investments in domestic urea manufacturing, the policy has the potential to reduce import dependence, enhance supply reliability and create a more sustainable foundation for India’s food production ecosystem. The proposed capacity addition, coupled with long-term policy support and assured offtake mechanisms, sends a strong signal to industry and investors alike that India is committed to building self-reliance in critical agricultural inputs. Every million tonne of domestic urea capacity that replaces import can roughly save USD 300-500 million annually in forex, “ he opined.

Sundaram added that greater domestic production would improve fertilizer availability for farmers while reducing the country’s vulnerability to international supply disruptions and price volatility. “For farmers, this could translate into more reliable product availability and reduced exposure to global supply disruptions and price volatility. For the industry, it creates greater confidence to invest in modern, efficient and environmentally responsible production facilities. This would also create 20,000-30,000 jobs during construction and around 50,000 direct and indirect jobs,” he added.

Looking ahead, he emphasized that policy implementation must be accompanied by continued investments in technology, diversified feedstock and greater nutrient-use efficiency. With NIPU-2026 now approved, the focus shifts to attracting private and public investment into new manufacturing capacity that can strengthen India’s fertilizer ecosystem, improve supply resilience and support the country’s long-term agricultural productivity and food security ambitions.

— Suchetana Choudhury (suchetana.choudhuri@agrospectrumindia.com)