Cabinet Approves National Investment Policy for Urea-2026 (NIPU-2026): Key Features, Benefits, Objectives and Impact

After the approval of the National Investment Policy for Urea-2026 for self-reliant India (NIPU-2026) by the Cabinet Committee on Economic Affairs led by Honorable Prime Minister Narendra Modi. This new scheme aims to promote the investment in gas-based urea manufacturing, reduce import dependency, enhance transparency in project economics, and boost India’s fertilizer production self-sufficiency. By substituting the prior investment policy for NIPU-2026, the government aims to modernize the urea industry in line with its ambitious self-reliant India plan.

What Is the National Investment Policy for Urea-2026 (NIPU-2026)?

The National Investment Policy for Urea-2026 (NIPU-2026) is the latest investment policy brought by the Department of Fertilizers with the aim to promote the establishment of new gas-based urea manufacturing plants in different parts of the country.

The policy intends to draw investment from both private and public sectors by providing a transparent and viable means for establishing modern urea production facilities, replacing the earlier New Investment Policy (NIP)-2012, which expired in the October of 2019.

The main aim of this policy is to increase the domestic urea production along with gradually reducing India’s dependence on imported fertilizers.

What Was the Rationale Behind the Implementation of NIPU-2026?

Urea, it is a type of fertilizer that plays a key role in the agricultural productivity, it is widely consumed throughout India.

Despite an increase in the domestic supply over the years, demand remains as higher than supply, which leads to the import of huge quantities.

The government has thus brought forth the initiative of NIPU-2026 in order to do the following,

• Increase the level of the domestic urea production
• Attract investments towards new production facilities
• Diminish dependency on the imports
• Enhance transparency in the returns received from the investment
• Boost up the level of fertilizers’ dependence in India
• As well as comply with the objectives regarding the Atmanirbhar Bharat project

The Department of Fertilizers has been approached by the different organizations with suggestions relating to the establishment of new plants producing urea, which illustrates the necessity of the development of new investment policies.

Key Features of the NIPU-2026

The NIPU-2026 policy has several features which are different from the earlier investment model.

The first two features of the policy are the following,

Formation of the New Gas-Based Urea Production Units

The emphasis of the policy is on the formation of new gas-based urea production units that utilize energy-efficient and environmentally friendly technologies.

The separation of fixed and variable costs.

The most important change introduced by NIPU can be described as the separation of fixed and variable costs. This change allows for the following:

• Assuring transparency of project economics;
• Ensuring fairness in cost estimation;
• Improving investment financial planning;

RoE as a mechanism

NIPU-2026 introduces a structured RoE mechanism.

According to the received band of RoE,

• Minimum (Floor): 12%;
• Maximum (Ceiling): 16%;

which offers more assurance to investors and guarantees efficient allocation of funds.

Reduction of currency exposure risk

To reduce the risks which are connected with currency fluctuations, NIPU-2026 envisages the conversion of fixed costs into Indian Rupees after four years taking into consideration exchange rates in force at that time.

Advantages of New Policy

The government anticipates that NIPU-2026 will provide several economic and strategic advantages.

Increased Native Production

The launch of new production units is likely to enhance the production capabilities of urea across the country resulting in fulfilling the needs of agriculture for urea.

Lowered the Import Dependency

The increase in local production of urea will reduce reliance on imported urea, hence improving the nation’s fertilizer security.

Savings

The government claims that the revised policy is predicted to save over ₹250 crores per new plant established within the framework of NIPU-2026 as compared to those plants that were built based on NIP-2012.

Enhanced Confidence of Investors

The costs being transparent as well as having guaranteed Return on Equity and protection from exchange rate fluctuations are likely to make the investment within fertilizer sector attractive.

Support for Atmanirbhar Bharat

The domestic production promotion measures aimed at to minimizing the number of imports and facilitating self-reliance make a direct contribution towards attaining the goal of the government to make the country self-sufficient.

Background: From NIP-2012 to NIPU-2026

All new plants that will be generated after the formal adoption of the policy will be included under the NIPU-2026 plan.

The New Investment Policy (NIP)-2012 has been implemented for drawing investment in the urea sector through,

• Greenfield projects
• Brownfield expansion
• Restoration of closed plants
• Enhancing the capacity of the existing units

The NIP-2012 has led to,

• Setting up the new six urea manufacturing units
• Creation of four new units through joint ventures of public sector
• Establishment of two units by the private players

The investment window under NIP-2012 came to a close in October, 2019 and there was a need for a new policy in order to meet future requirements.