The Union Cabinet has approved the National Investment Policy for Urea (NIPU-2026) on Wednesday, July 15, to create fresh domestic urea capacity of 10 million tonnes and make India self-reliant in the most widely consumed fertiliser. As per government officials, the core of this measure is a dual strategy that injects tax benefits and subsidies for items that can be produced domestically, and responds with strategic reserves and import source diversification for items that cannot be self-supplied. The government will significantly increase the reserve volume of daily necessities such as crude oil and urea and directly support the cost burden associated with alternative imports to fundamentally improve the domestic supply chain structure vulnerable to external shocks. Starting from 2027, overseas supply chain investments in the urea and core mineral sectors will be expanded, with sovereign wealth funds and policy funds linked to support the securing of preferred negotiation rights for overseas resource development and mining projects.
The policy is aimed at raising India's domestic urea production by almost 9-10 million tonnes over the next eight years through the establishment of seven new units, both brownfield and greenfield. Each unit is proposed to have an approximate annual production capacity of 1.27 million tonnes of urea. This is projected to save the exchequer more than ₹250 crore for every urea plant established under the policy, based on conservative estimates and assuming an average annual imported urea price of $345 per tonne. The new investment policy assumes an approximate project cost of ₹11,000 crore for the greenfield category and ₹9,000 crore for the brownfield category, based on an exchange rate of $1 = ₹90. The new policy framework includes three pillars: fixed and variable costs separation for subsidy calculation, assured returns in the range of 12-16 per cent for urea plant companies, and forex risk mitigation.
India's urea production currently stands at 26.94 million tonnes against a demand of 40 million tonnes, creating a supply gap of 10 million tonnes that is currently met through imports. As per I&B Minister Ashwini Vaishnaw, urea requirement is rising by 5 per cent per annum, making the need for additional capacity urgent. The policy approved today aims to create additional urea capacity and become self-reliant, addressing the growing demand-supply imbalance. The new investment framework, approved in the cabinet meeting chaired by Prime Minister Narendra Modi, will support the setting up of 8-9 new natural gas-based plants to meet the country's complete requirement locally. According to EY India, every million tonnes of domestic urea capacity that replaces imports can save roughly $300-500 million annually in foreign exchange, potentially lowering the annual subsidy requirement for imported urea. India imports around 25% of its annual urea requirement, leaving the country vulnerable to global supply disruptions and price volatility. The war in West Asia and the closure of the Strait of Hormuz saw prices spike 40-50 per cent until China lifted its temporary export ban.
For items with over 80% dependency on specific countries, the government will provide low-interest loans for alternative import costs through a supply chain stabilization fund, with support limits increased from 80-90% to 100% and preferential interest rates up to 2.3 percentage points. The calculation is designed to completely relieve the cost burden on companies by raising the support limit from the previous 90% to 100% and providing an interest rate preference of up to 2.3% points. Starting in 2027, the government will directly secure overseas production bases for items that face limits with domestic production and reserves alone. The government will also step forward to disperse crude oil import sources, which have a high dependence on the Middle East, by supporting technology development for refining non-Middle Eastern extra-heavy crude oil and reviewing the reorganization of the petroleum import surcharge refund system.
The government is encouraging domestic production of economically secure items through tax deductions for domestically produced items of high importance. A tax deduction will be introduced based on the production and sales volume of strategically important items, calculated by multiplying an appropriate unit price by the quantity produced, which will then be deducted from corporate or income taxes. For high-risk items that lack cost competitiveness, production subsidies will be continuously provided until 2027 to prevent the collapse of the production base. Considering the characteristics of businesses with large initial investment costs and low profitability, a certain amount will be deducted from corporate tax and income tax, and separate support measures are being considered for companies that cannot benefit from tax incentives due to initial production losses. If strategic items essential for economic security and the green transition are produced domestically, a Domestic Production Tax Credit linked to production volume and unit price will be introduced. The new policy is an extension of the New Investment Policy (NIP)-2012, with key changes including separating fixed and variable costs for greater transparency, introducing a viable return on equity band with a floor of 12% and ceiling of 16%, and mitigating foreign exchange risk through conversion of fixed costs into rupees after four years based on prevailing exchange rates.
