India's fertiliser sector is set to enter a fresh capital expenditure cycle, with the industry expected to commit ₹80,000-90,000 crore towards new urea projects over the next six months following the government's notification of the New Investment Policy for Urea-2026 (NIPU-2026), as reported by rating agency ICRA. These substantial investments represent a significant boost to the fertiliser sector's expansion plans and infrastructure development, with plants coming up under the new policy likely to take around 3.5-4 years to commission. The scale of these investments underscores the sector's commitment to strengthening India's agricultural supply chain and reducing import dependence.
The new investments are expected to materially improve domestic urea self-sufficiency from 2030-31, addressing a critical concern as India's urea import dependence has been rising amid a lack of capacity additions in recent years. According to ICRA, India imported around 27% of its urea requirement in 2025-26, with domestic capacity at 30.6 million tonnes per annum (MMTPA) against demand of around 39.9 million tonnes. The investment focus on urea production capacity expansion aligns with the government's broader goal of achieving greater self-reliance in essential agricultural inputs, positioning these investments as critical for India's agricultural infrastructure development.
The economics of new projects have been tightened under NIPU-2026, mainly through lower notified realisations, with floor and ceiling realisations for greenfield and revival units set at $281 and $296 per tonne respectively, compared with $305 and $335 per tonne under the earlier NIP-2012. The policy has also narrowed the return window to 12-16% return on equity (RoE), compared with 12-20% under NIP-2012. According to ICRA, the lower realisations could reduce EBITDA by ₹250-280 crore for a standard 1.27-MMTPA unit compared with the earlier policy. Despite this, the debt coverage and return metrics are expected to remain comfortable for project proponents, with the cumulative debt service coverage ratio of a greenfield project expected to remain at 1.26 times over the eight-year policy period. ICRA Senior Vice President and Group Head Girishkumar Kadam emphasized that controlling project costs and consistently operating plants at more than 95% capacity utilisation would be crucial for project proponents.
The capex revival could increase demand for natural gas, with imported LNG accounting for around 85% of the fertiliser sector's gas consumption in 2025-26, up from 64% in 2020-21. Each new 1.27-MMTPA urea plant is expected to require around 2.2 million standard cubic metres per day (mmscmd) of gas, equivalent to about 0.6 million tonnes of LNG. According to ICRA, diversification of gas sourcing contracts will therefore be crucial, particularly after the fertiliser pool gas price rose to around $19/mmBtu in April 2026 from about $13/mmBtu earlier amid the West Asia crisis. The capex cycle is also expected to benefit gas transmission companies, LNG terminals, gas traders, EPC contractors and manufacturers of critical equipment such as high-pressure process vessels, heat exchangers, reactors and ammonia converters. However, ICRA has flagged dependence on imported natural gas as a key risk that needs attention as new urea capacity comes online.
