The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, approved the proposal of the Department of Fertilizers regarding the National Investment Policy for Urea-2026 (NIPU-2026) for Aatmanirbhar Bharat on July 15, 2026. The policy introduces a new investment framework for the urea sector, designed to encourage fresh investments in domestic urea manufacturing through the establishment of modern, gas-based urea manufacturing units across the country.
The approval of NIPU-2026 came at a time when there was a critical need to enhance domestic production of urea. Despite a significant expansion in domestic capacity over the last decade, a gap continues to exist between domestic production and demand, which is presently filled by imports. By promoting the establishment of new urea manufacturing facilities, the policy aims to strengthen domestic fertiliser production. Moreover, it contributes to India’s long-term fertiliser security and advances the goal of self-sufficiency in urea production under the Aatmanirbhar Bharat initiative.
Rationale for the Policy
The NIPU-2026 has been introduced under the backdrop of rising demand for urea in the country. Urea demand has been increasing by about five per cent annually. The increase has been attributed to changing cropping patterns, expansion in sown area, and consecutive years of record agricultural production. These developments have led to growing pressure on domestic supplies of the most widely consumed fertiliser in India.
At present, India has 33 operational urea manufacturing units with a total reassessed or installed capacity of 269.42 lakh metric tonnes (LMT), equivalent to 26.94 million tonnes (MT), annually. However, domestic production remains insufficient to meet national requirements. The annual domestic production is around 30 MT due to efficiency optimisation; the actual requirement has surged to approximately 40 MT. Consequently, the country imports around 10 MT of urea every year to address domestic shortages.
The Department of Fertilizers has received various proposals for setting up urea units, highlighting the need for a renewed policy framework to facilitate future capacity expansion. The previous investment framework expired in October 2019, making a fresh policy necessary to support new investments and bridge the gap between domestic production and demand.
Evolution from the New Investment Policy-2012
The NIPU-2026 is an extension of the New Investment Policy (NIP)-2012 with important revisions. The original policy was finalised by the Department of Fertilizers in 2012 to attract investments in the urea sector through revamp, expansion, revival of closed units, brownfield projects (building on existing sites), and greenfield projects (building entirely new facilities from scratch).
Under the NIP-2012, a total of six new urea units were established which significantly expanded India’s domestic urea production and curbed an even steeper rise in imports. Of these, four units were set up through Joint Venture Companies of nominated public sector undertakings, while two units were established by private companies. These investments also strengthened India’s long-term fertiliser security during the last decade.
The period for new investments under NIP-2012 concluded in October 2019. While the policy succeeded in creating additional capacity, the continued rise in demand and the persistence of imports underscored the need for a revised framework. NIPU-2026 has therefore been designed to build upon the achievements of the earlier policy while introducing changes intended to improve transparency, financial viability, and investment attractiveness.
Key Features of NIPU-2026
The NIPU-2026 incorporates several important changes over NIP-2012. One of the principal modifications is the separation of fixed and variable costs. This measure has been incorporated to provide greater transparency in project implementation and financial assessment. Under the new framework, the fixed costs (such as capital expenditure, land, and machinery) are explicitly separated from variable costs (such as energy, raw materials, and operational expenses).
Another important feature is the introduction of a viable Return on Equity (RoE) band. Under the new framework, the RoE has a floor of 12 per cent and a ceiling of 16 per cent. The inclusion of a defined RoE is expected to improve the financial viability of new projects and create a more predictable investment environment for stakeholders.
The policy also seeks to mitigate foreign exchange risks. This will be achieved through the conversion of fixed costs into Indian rupees after four years of operation, based on prevailing exchange rates. The mechanism is intended to reduce uncertainties arising from exchange rate fluctuations and provide greater stability to investors over the life of the project.
According to the government, the revised framework is estimated to reduce projects costs by more than 250 crore rupees for each plant established under the NIPU-2026 when compared with plants established under NIP-2012, thereby improving the overall investment attractiveness of new projects.
An important aspect of the policy is that the incentive structure will remain uniform across ownership categories. The incentive under the policy will be the same for public-sector, private-sector, and cooperative-sector projects, thereby ensuring a level playing field for all prospective investors in the sector.
Implementation Strategy and Capacity Addition
The government has indicated that approximately eight to nine new urea manufacturing plants are expected to be established under the policy. Each of these facilities is projected to produce about 12.7 LMT of urea annually. Collectively, the plants are expected to generate around one crore metric tonnes (CMT) or 10 MT of additional urea production capacity.
The proposed capacity addition assumes particular significance in the context of the existing production-demand gap. With domestic production currently standing at about 30 MT against a requirement of 40 MT, the additional output from the new plants is expected to substantially reduce import dependence and move India closer to self-sufficiency in production.
The policy specifically promotes gas-based urea manufacturing units. By focusing on such facilities, the government seeks to expand domestic manufacturing and hence, meeting future demand requirements. The new investment framework is expected to provide a renewed impetus to the urea sector and facilitate sustained capacity expansion over the coming years.
Contribution to Self-Sufficiency and Aatmanirbhar Bharat
The central objective of NIPU-2026 is to achieve self-reliance in urea production. The approval of the policy aligns with the broader vision of Aatmanirbhar Bharat and reflects the government’s emphasis on strengthening domestic manufacturing capabilities.
Prime Minister Narendra Modi described the approval of the NIPU-2026 as a step that would encourage investments in new gas-based urea production plants and reinforce India’s resolve to achieve self-reliance in urea production. The policy has also been presented as a measure that advances the welfare of farmers across the country by supporting the availability of a critical agricultural input.
The proposed capacity addition of eight to nine new plants is expected to significantly improve the country’s urea supply-demand balance. The additional capacity of 10 MT corresponds closely with the quantity currently imported each year. As a result, the implementation of NIPU-2026 is expected to move India closer to complete self-sufficiency in urea production.
The policy is also expected to contribute to India’s long-term fertiliser security. By enhancing domestic production, the country could reduce its dependence on external sources and strengthen its ability to meet domestic demand.
Conclusion
The NIPU-2026 represents a significant step in India’s fertiliser policy by introducing a more transparent, predictable, and more investor-friendly investment framework for domestic urea production.
The policy is expected to strengthen the long-term resilience of the country’s fertiliser sector by encouraging fresh investments and expanding domestic manufacturing capacity. Its successful implementation will not only reinforce domestic manufacturing capabilities and fertiliser security, but also contribute to agricultural productivity and the vision of Aatmanirbhar Bharat.
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