India is moving to expand domestic urea production as a widening supply gap leaves it dependent on imports for a key farm input. The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, on 15 July approved the Department of Fertilizers' proposal for the National Investment Policy for Urea-2026 (NIPU-2026).
India's annual urea demand is around 40 million tonnes (mt) and growing at about 5% a year. Domestic production meets roughly 30 mt, leaving about 10 mt to be imported. Geopolitical disruptions, including the war in West Asia, volatile natural gas prices and rising global costs have underscored the risks of relying on overseas supplies.
The new policy seeks to attract fresh investment in urea plants, expand existing facilities and encourage more efficient technologies.
Mint explains why it matters for India's fertilizer security.
Why has the government introduced NIPU-2026?
India's urea production has risen over the past decade as the government revived closed plants and commissioned new units. But demand continues to outpace supply, leaving the country exposed to global markets.
The previous investment framework, NIP-2012, expired in October 2019. Under it, six new urea units were established—four through joint venture companies of nominated public-sector undertakings and two by private companies. Each has an installed capacity of 1.27 mt, taking the combined capacity to 7.62 mt.
NIPU-2026 is intended to restart investment and close the production gap. The government expects higher domestic capacity to improve fertilizer availability during peak sowing seasons, reduce import dependence and limit the Centre's exposure to global price swings.
What are the key changes under the new policy?
The revised policy replaces the 2012 framework with a structure aimed at improving project viability while limiting the government's exposure to excessive costs.
It separates fixed and variable costs and guarantees a return on equity (RoE) of 12-16%. The 12% floor is intended to keep projects attractive to investors, while the 16% ceiling limits excessive returns and balances investor incentives with public spending.
The policy also addresses currency risk. Many plant components are imported, linking project costs to foreign currencies. Under NIP-2026, the fixed-cost component will be converted into Indian rupees after four years using the prevailing exchange rate.
The government says the changes will make subsidy commitments more predictable and save more than ₹250 crore for every urea plant established under the policy.
How many new plants could come up?
The government expects 8-9 gas-based greenfield and brownfield plants, each with a capacity of 1.27 mt, to be set up under the policy. Together, they would add about 10 mt of capacity.
The expansion will involve private and public-sector companies, joint ventures and cooperatives. The government said it has already received proposals for new urea units.
"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," said Satyam Shivam Sundaram, partner, government and public sector, EY India.
How much urea does India produce today?
Urea is India's most widely used nitrogenous fertilizer and accounts for more than half of total fertilizer consumption, making it central to crop yields and food security.
India has 33 operational urea manufacturing units across all sectors, with a combined capacity of 26.9 mt. Domestic urea production rose to 30.6 mt in 2024-25 from 22.5 mt in 2014-15.
Yet production remains below demand. India imports around 20% of its annual urea requirement, leaving the country vulnerable to global supply disruptions and price volatility.
Will NIPU-2026 reduce India's fertilizer import bill?
That is the government's broader objective. More domestic production should reduce urea imports, cut foreign-exchange outgo and limit India's exposure to volatile international markets.
The stakes are high: India is the world's second-largest fertilizer consumer and largest importer of urea. According to Sundaram, every 1 mt of domestic urea capacity that replaces imports could save roughly $300-500 million a year in foreign exchange.
The policy also comes as fertilizer subsidies remain a major burden on the Centre. The government had budgeted ₹1.77 trillion for fertilizer subsidies for the current fiscal year, but the Department of Fertilizers has sought a 100% increase to ₹3.5 trillion amid rising prices linked to the conflict in West Asia.
India's fertilizer subsidy bill crossed ₹2.17 trillion in FY26.