Policy Update
Rathin Pathak
Introduction:
NIPU-2026 is a new investment policy that aims to expand India’s domestic urea production by encouraging fresh gas-based manufacturing capacity and reducing import dependence. It was approved to improve supply security, make project economics more transparent, and support the broader goal of Atmanirbhar Bharat. The policy is also designed to attract investment by separating fixed and variable costs, setting a return-on-equity band, and lowering foreign exchange risk for developers. In policy terms, it is best understood as a supply-side reform: it strengthens domestic availability, but its long-term success will also depend on whether India can curb persistent high consumption and improve nutrient balance in fertilizer use.
Background:
The National Investment Policy for Urea-2026 (NIPU-2026) is the Union Government’s latest attempt to expand domestic urea production and reduce India’s dependence on imports. Approved by the Cabinet Committee on Economic Affairs on 15 July 2026, the policy is framed as an Atmanirbhar Bharat measure aimed at encouraging fresh investment in gas-based urea manufacturing units. The official policy framing presents it as a successor to the earlier NIP-2012 model, which supported six new plants but expired in 2019, leaving India without a fresh investment framework for large-scale urea capacity creation.
The timing of the policy matters because India remains heavily exposed to global fertiliser markets. Official government statements have noted that India has 33 operational urea units with an installed/reassessed capacity of 269.42 lakh metric tonnes, yet domestic supply still falls short of demand and imports continue to fill the gap. This makes urea policy not just an agricultural issue, but also a question of energy security, foreign exchange stability, and farm-sector resilience.
At a broader level, NIPU-2026 reflects a familiar policy approach in Indian agriculture: strengthen supply first, then hope efficiency improves later. That approach can work when the main problem is shortage alone. But in urea, the central problem is more complex because the market is shaped by heavy subsidy, weak price signals, and persistent overuse. That is why the policy must be judged not only on whether it increases supply, but also on whether it changes how urea is used.
Functioning:
NIPU-2026 is designed to support new gas-based urea manufacturing units by making investment more predictable and financially viable. The official policy framework separates fixed and variable costs, offers a return on equity band of 12% to 16%, and reduces exchange-rate risk by converting fixed costs into rupees after four years. According to the Cabinet briefing, these measures are intended to improve transparency and reduce the uncertainty that usually discourages private investment in fertiliser plants.
The policy also aims to lower the capital burden of fresh projects. Official statements indicate that the framework is expected to save more than ₹250 crore for each plant compared with the earlier NIP-2012 arrangement. In practical terms, this makes the policy a financial de-risking mechanism for large industrial projects rather than only a production target statement. This structure has strengths. Fertiliser manufacturing is capital-intensive, operationally sensitive, and deeply affected by gas supply and price volatility. By clarifying the cost framework, the government reduces some of the uncertainty that usually slows down plant creation. The policy therefore has a real industrial policy logic: if India wants domestic urea security, it must first make the sector investable.
But the functioning of the policy also reveals its main limitation. NIPU-2026 focuses on how to produce more urea, not how to use less of it more efficiently. That is a critical distinction because India’s urea problem is not only about shortage; it is also about distortion. When a fertiliser remains cheap and abundant, farmers often apply it as a default input rather than as a crop-specific nutrient. In that sense, a successful production policy can still fail as a resource-efficiency policy.
Performance
Performance can be assessed in two ways: first, by whether the policy can expand domestic capacity; and second, by whether it can reduce the structural dependence on imports and overconsumption. On the first count, the policy is still early-stage, but it is clearly designed to create roughly 8 to 9 new gas-based plants with a combined target of around 10 million tonnes of capacity. If executed properly, this could improve domestic availability and reduce exposure to import volatility.
On the second count, the record of the urea sector is less encouraging. Available data show that per-hectare urea use declined only marginally from 155.81 kg in 2015–16 to 152.53 kg in 2019–20, a reduction of just 2.28 kg/ha in five years. That is not the kind of decline that would signal major efficiency gains. Instead, it suggests that the underlying incentive structure changed very little during the period when reform was supposedly underway.
| Period / indicator | Data point | What it suggests |
| 2020–21 | 350.51 lakh MT | National urea consumption remained very high. |
| 2021–22 | 341.73 lakh MT | Consumption dipped slightly, but stayed above 340 lakh MT. |
| 2022–23 | 357.26 lakh MT | Consumption rose again, showing no sustained downward trend. |
| 2023-24 | 357.81 lakh MT | Consumption climbed a bit. |
| 2024-25 | 387.92 lakh MT | Urea consumption continues its steady climb and hits record high. |
Table 1: Stats taken from PIB official reports
Graph 1: visualises the above table showing the upward moving trend of urea consumption in India
The national consumption trend also points to persistent high use. Reported figures show national urea consumption of 350.51 lakh metric tonnes in 2020–21, 341.73 lakh metric tonnes in 2021–22, and 357.26 lakh metric tonnes in 2022–23. More recent reporting indicates that consumption continued to climb, reaching 357.81 lakh metric tonnes in 2023–24 and 387.92 lakh metric tonnes in 2024–25. Even allowing for variation in reporting and official revisions, the broad pattern is unmistakable: use remains high and has not moved toward a durable downward trend. NIP-2012 laid the base for expanding urea capacity, but NIPU-2026 is more focused and financially structured.
The newer policy aims to add 10 million tonnes of fresh indigenous urea capacity and is designed to save over ₹250 crore per plant compared with the earlier framework. It also comes at a time when India’s urea consumption remains very high, rising from 308.74 lakh metric tonnes in 2014–15 to 357.81 lakh metric tonnes in 2023–24 and 385.52 lakh metric tonnes by 26 March 2025. So, compared with NIP-2012, NIPU-2026 is not just about building capacity; it is also meant to make projects more predictable for investors and reduce import dependence in a market where demand is still strong.
Official data suggest that NIPU-2026 is delivering mainly on the supply side, while the demand-side problem remains unresolved. The government’s figures show urea consumption rising from 308.74 lakh metric tonnes in 2014–15 to 357.81 lakh metric tonnes in 2023–24 and 385.52 lakh metric tonnes by 26 March 2025. Imports also remained significant, at 70.42 lakh metric tonnes in 2023–24 and 51.69 lakh metric tonnes by late February 2025.
At the same time, indigenous production increased from 225 lakh metric tonnes in 2014–15 to 314.07 lakh metric tonnes in 2023–24, supported by new capacity that raised total indigenous production capacity from 207.54 LMTPA to 283.74 LMTPA. The Cabinet note for NIPU-2026 shows that the policy is designed to strengthen domestic production and reduce import dependence, but the continued high consumption and large subsidy burden suggest that it improves resilience more than it reforms the low-price, high-volume consumption cycle.
Impact:
The immediate impact of NIPU-2026 is likely to be positive for domestic supply planning. More investment in urea plants can reduce short-term vulnerability to external shocks, improve procurement certainty, and support farmers if supplies become steadier across the season. This is not a trivial gain, because fertiliser shortages can quickly become politically and economically disruptive in a country where farm input availability directly affects crop decisions.
The policy may also improve investor confidence in the fertiliser sector. The clearer cost structure and defined return band reduce some of the uncertainty that has historically made urea manufacturing a difficult sector for fresh capital. That is a genuine industrial-policy achievement, especially in a market where pricing, gas availability, and subsidy flows are tightly linked to state decisions.
However, the broader agricultural impact is more ambiguous. If urea stays cheap and abundant, farmers may have little reason to shift toward balanced fertilisation. That can worsen soil nutrient imbalance, encourage overapplication, and sustain a pattern of yield dependence on one subsidised nutrient. In the long run, this can weaken soil health, distort cropping choices, and keep India locked into a subsidy-heavy input regime. There is also a fiscal impact. India already spends heavily on fertiliser support, and the Department of Fertilizers received a very large budgetary allocation of around ₹1.71 lakh crore in 2026–27.
If new plants are created while consumption remains high and urea prices stay controlled, then the state may end up supporting the system on two fronts: first through production incentives, and second through consumer subsidies. That creates a real risk of rising public cost without corresponding efficiency gains. In environmental terms, the impact is mixed. Domestic production may reduce some import-related emissions and supply chain exposure, but the policy remains tied to gas-based manufacturing. That means the sector continues to depend on fossil fuel infrastructure and global gas prices. For a country that says it wants more resilient and cleaner agricultural systems, that is a structural trade-off that should be stated openly.
Emerging Issues:
- The policy expands supply but does not directly solve overconsumption. If prices stay low, farmers may continue to use urea as a default input rather than according to crop need.
- The gas-based production model keeps the sector tied to fossil-fuel markets. That weakens long-term resilience and exposes plants to energy price volatility.
- Persistent high consumption shows that previous reform efforts have not meaningfully changed behaviour. The small decline in per-hectare usage between 2015–16 and 2019–20 is too modest to count as structural efficiency improvement.
- Import reduction alone is not enough. Domestic plants can reduce external dependence, but they do not automatically improve nutrient balance or soil health.
- The fiscal burden may rise if production support and consumer subsidies run together. This can make the policy expensive without making it more effective.
- Policy gains may be uneven across states. Regions with weak logistics, gas constraints, or poor distribution systems may not benefit equally from new plants.
Way Forward:
The first priority should be to link new capacity with demand-side reform. New urea plants should not be treated as a substitute for better nutrient governance. India needs stronger soil testing, crop-wise nutrient advice, and tighter monitoring of actual fertiliser application if it wants lower waste and better long-term productivity.
Second, the subsidy structure should be rebalanced toward balanced fertilisation. If urea is the cheapest and easiest nutrient to access, farmers will rationally continue to prefer it over more balanced alternatives. The policy should therefore be accompanied by better support for phosphorus, potassium, and micronutrient use so that farmers are not trapped in a urea-heavy model. Third, the government should require measurable performance conditions for new plants. These should include efficiency in output, reliability of supply, and lower emissions intensity, not just construction milestones. In other words, public support should be tied to outcomes that matter for both agriculture and fiscal discipline.
Finally, the medium-term strategy should include a gradual reduction in the sector’s dependence on fossil-linked production. NIPU-2026 can be a transitional measure, but it should not become the endpoint. A durable fertiliser policy should combine domestic production with nutrient reform, fiscal restraint, and a clear plan to reduce dependence on volatile gas markets.
Conclusion:
NIPU-2026 is a strong supply-side intervention, but its real success will depend on whether it also helps correct the deeper distortions in India’s urea economy. By expanding domestic capacity, the policy can reduce import dependence and improve fertiliser security, yet without parallel demand-side reform it may simply sustain the same pattern of cheap, high-volume, and inefficient use. A genuinely durable outcome will require the state to treat production reform, nutrient balance, and fiscal discipline as parts of the same policy problem.
References:
Department of Fertilizers, Ministry of Chemicals and Fertilizers, Government of India. (2025). Year-wise details of consumption of urea from 2014-15 to 2024-25 [Data set]. data.gov.in. https://www.data.gov.in/resource/year-wise-details-consumption-urea-2014-15-2024-25
Department of Fertilizers, Ministry of Chemicals and Fertilizers, Government of India. (2026, July 15). Cabinet approves National Investment Policy for Urea-2026 [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2284801®=48&lang=2
Department of Fertilizers, Ministry of Chemicals and Fertilizers, Government of India. (2026, July). [PDF document related to National Investment Policy for Urea-2026]. Press Information Bureau. https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/jul/doc2026715922501.pdf
Department of Fertilizers, Ministry of Chemicals and Fertilizers, Government of India. (2025). Year-wise details of import of urea from 2014-15 to 2024-25 [Data set]. data.gov.in. https://www.data.gov.in/resource/year-wise-details-import-urea-2014-15-2024-25
Millennium Post. (2021, July). Just 228 kg/hectare reduction in urea consumption in 5 years. https://www.millenniumpost.in/business/just-228-kghectare-reduction-in-urea-consumption-in-5-years-448697
The Tribune. (n.d.). Agri department to track urea sale in Haryana as consumption up by 56,000 MT. https://www.tribuneindia.com/news/haryana/agri-department-to-track-urea-sale-in-haryana-as-consumption-up-by-56000-mt/
Business Standard. (2026, July 15). Cabinet okays National Investment Policy for 10 mt fresh urea capacity.https://www.business-standard.com/amp/industry/agriculture/cabinet-okays-national-investment-policy-for-10-mt-fresh-urea-capacity-126071500810_1.html
Press Information Bureau. (2025, November 2). Adequate urea availability for farmers ensured during the Kharif season 2025 https://www.pib.gov.in/PressReleasePage.aspx?PRID=2185966®=48&lang=2
Press Information Bureau. (2025, August). [Press release on fertilizer-related measures]. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221682®=3&lang=2
Press Information Bureau. (2025, September). [Press release on fertilizer-related measures]. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237803®=3&lang=2
The Indian Express. (2026, July 15). Cabinet okays new urea policy. What changes?https://indianexpress.com/article/india/union-cabinet-approves-national-investment-policy-urea-2026-nipu-domestic-production-imp…
About the Contributor
Rathin Pathak is a Research and Editorial Intern at IMPRI. He holds an MSc in Psychology (BPS Accredited) from the University of Bradford, United Kingdom, where his research explored the relationship between interoception and anxiety using quantitative research methods. He currently works within the NHS, gaining practical insight into healthcare systems and patient-centred care. His research interests include behavioural science, mental health, public policy, digital governance, and evidence-based decision-making.
Acknowledgment
The author extends sincere gratitude to the IMPRI team for their invaluable guidance throughout the process.
Reviewed by: Kavin Adithya, Shivani Chauhan
Publisher: Pallavi Lad
Disclaimer: All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.
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