West Asia war: Centre working on extending new investment policy for urea

Amid the West Asia crisis, the central government is finalising an extension of the 2012 New Investment Policy (NIP), with some amendments, to attract fresh investments in the urea sector.

 

Sources said the policy aims to raise India’s domestic urea production by almost 9–10 million tonnes (mt) over the next eight years through the establishment of seven new units, including both brownfield and greenfield projects.

 

Each unit is proposed to have an annual production capacity of around 1.27 mt of urea. Preliminary reports indicate that, of the seven proposed units, three could be set up in the private sector, three in the government sector (including by state governments), and one in the cooperative sector. 

The move is projected to save the exchequer more than ₹10,500 crore annually in subsidies, based on conservative estimates and assuming an average imported urea price of $345 per tonne. According to sources, the new policy guarantees a buyback arrangement for the units for eight years from the commencement of production.

 

According to sources, the policy estimates the project cost at around ₹11,000 crore for greenfield projects and ₹9,000 crore for brownfield projects (based on an exchange rate of $1 = ₹90).

 

The policy is being finalised even as global urea prices have surged by more than 112 per cent amid the West Asia crisis, driven by supply bottlenecks, to around $925 per tonne.

 

Apart from urea prices, the West Asia crisis has also pushed up the price of liquefied natural gas, the principal feedstock used in urea production. LNG prices rose from around $10.4 per million British thermal unit (mBtu) in late February to over $18 per mBtu in early May, after peaking at nearly $25.4 per mBtu in early March.

 

India currently imports around 26 per cent of its annual urea requirement, placing a heavy burden on the exchequer amid elevated global prices triggered by the West Asia crisis.

 

In 2026-27 (FY27), some estimates have pegged India’s fertiliser subsidy bill at over ₹3 trillion. If realised, this would make FY27 fertiliser subsidies the highest ever, surpassing the ₹2.51 trillion recorded in 2022-23 and exceeding the FY27 Budget Estimate of ₹1.79 trillion by more than 67 per cent, or around ₹1.29 trillion.

 

Sources said the main changes in the extended NIP relate to revisions in the exchange rate assumptions, while the core provisions of the earlier policy — including the revision in floor and ceiling gas prices for every $0.1 per mBtu change in delivered gas prices — remain unchanged.

 

The proposed floor price for gas for greenfield or revival projects has been set at $281 per tonne of urea, compared with $305 in the earlier policy, while the ceiling price has been proposed at $301 per tonne, against $335 earlier.

 

Similarly, for brownfield or expansion projects, the proposed floor price is $263 per tonne, compared with $285 in the 2012 policy, while the ceiling price has been proposed at $283 per tonne of urea, against $310 per tonne earlier. The revisions are in line with changes in exchange rates.

 

As in the 2012 policy, the floor price has been determined at a return on equity (RoE) of 12 per cent and the ceiling price at an RoE of 20 per cent.

 

The 2012 NIP led to the setting up of six new urea units across the country with a combined capacity of over 5 mt. The policy expired in 2019, and there is currently no framework for fresh investment in the urea sector.

 

In March 2025, however, the central government approved the setting up of a new brownfield ammonia-urea complex with an annual capacity of 1.27 mt at the existing premises of Brahmaputra Valley Fertilizer Corporation in Namrup, Assam.