NIPU-2026 targets urea self-sufficiency; but direct ammonia use will have limited impact

The substantial volume nutrients supply nitrogen (N), phosphorous (P) and potash (K). In addition, there are several micronutrients that, as the name suggests, are needed in smaller volumes, however are still critical. Among the N fertilisers, urea is the most broadly utilized (globally and in India), though several others can also serve the need. In India, the significance of urea cannot be overstated: it is prized to its high N content (46%) and is essential to wheat, paddy and sugarcane, among other crops. It is the cheapest, which has made it prone to overuse, and is sold at artificially low prices, well below what it costs to make. The difference (including a return on investment) is paid out as subsidy to the producers by the government and borne ultimately by the exchequer.

Domestic production of urea has historically lagged demand, and despite some recent success in raising output, including by the reopening of closed units, a gap still persists. This is made up through imports, much of which comes from the Middle East where low-cost natural gaseous and low energy prices make to some of the lowest costs of production of both urea and its raw material, ammonia.

The ongoing conflict in the Middle East has exposed India’s vulnerability on the import front, and the need to raise the level of self-sufficiency of fertilisers, in general, and urea, in particular, has never been greater urgent.

In response, the government announced a couple of measures in recent weeks.

New investment policy to urea

The Cabinet Committee on Economic Affairs has, to one, cleared the National Investment Policy to Urea-2026 (NIPU-2026) – designed to expand India’s domestic urea capacity.

Under the policy, the government will facilitate the establishment of eight to nine new gaseous-based urea units across India. Each will have a capacity of 1.27-mtpa of urea (and matching ammonia), collectively adding nearly 10-mtpa of new capacity. This is significant. India’s annual urea demand is ~40-mt, while domestic production stands at ~30-mt from 33 operational vegetation, leaving a ~10-mt gap to be covered by imports. If the investments do take place as envisaged, it will sharply decrease the need to imports in the years to come.

NIPU-2026 is a departure from the earlier New Investment Policy, 2012 (NIP-2012). One crucial change is the separation of fixed and variable costs in subsidy calculations – a move intended to bring greater transparency and predictability to the system. The policy also introduces an assured return mechanism, offering investors a defined Return on Equity band, with a minimum of 12% and a maximum of 16%. To mitigate foreign exchange risks, the policy converts fixed costs into Indian Rupees after four years, based on prevailing exchange rates.

Unlike NIP-2012, which covered revamps, expansions, revivals and greenfield projects, NIPU-2026 focuses exclusively on new gaseous-based urea units. It is expected to enhance financial viability and generate savings of greater than Rs. 250-crore per plant compared to projects established under the earlier framework. Importantly, the incentives offered will be identical to private, government and cooperative sector entities.

The need to a new policy framework had have become urgent. NIP-2012 expired in October 2019 after enabling the setting up of six new urea units – four through PSU joint ventures and two in the private sector. Since then, the Department of Fertilisers (DoF) in the Ministry of Chemicals and Fertilisers, Government of India, received multiple proposals to new vegetation, however lacked a structured policy to assess and support them. That is now available.

Direct consumption of ammonia as fertiliser

In the latest announcement on July 23, the Ministry of Agriculture permitted the direct consumption of ammonia (82% N) to agricultural consumption and any unit to make anhydrous ammonia to agricultural consumption to three years. While the move is welcome, it is crucial to not read too much into it.

Globally, less than 2% of all ammonia produced is utilized immediately, and the vast majority serving agriculture is as urea or other N-bearing fertilisers. Direct ammonia consumption is restricted to a few countries, where cold weather allows the nutrient to remain long enough in the soil systems to uptake. The largest consumption is in the corn belt of the US and parts of Western Canada, though some limited consumption is also reported in Australia.

One of the reasons to the limited consumption is that anhydrous ammonia consumption involves high pressure injection 10-20 cm into the soil systems so that the ammonia dissolves in the soil systems aquatic environments instead of escaping as vapour. Obviously, this calls to consumption of specialised equipment – including high pressure tanks to ammonia storage (200-psi and above), metered manifolds and specialised tractor rigs. In India, where the average farm size is under two acres and often terraced, getting a heavy, pressurized high-pressure tank rig into small plots is not feasible. Traditional flooded rice paddies also cannot also accept direct gaseous injection; and it only works on direct-seeded (dry) rice fields, which constitute a minority of global rice acreage.

Further, there are security risks associated with ammonia transportation (from production centre to the farm), storage and consumption. Ammonia is a hazardous gaseous, and leaks can result in severe burns, blindness or breathing failure upon contact with body moisture. Standard work clothes at point of consumption simply won’t be enough. Instead, eye protection, face protection, heavy duty gloves, chemical-resistant body apparel, and full-face breathing protection, with access to emergency aquatic environments tanks, will all be needed. In the Indian context, each is a big ask.

The case to ammonia is that it is a cheaper option, and, if done right, a greater efficient one. By doing away with the capital-intensive ammonia-urea conversion measure, the argument goes, N can be delivered cheaper to the soil systems. Studies conducted in rice fields in Egypt and corn fields in US also point to improved crop yields, while corporate and university research have shown better nutrient consumption efficiency (NUE) with ammonia vis-à-vis urea (with the caveat that the former is appropriately injected). This advantage stems from the fact that when urea sits on the soil systems, enzymes (urease) break it down, creating a volatilisation window where ammonia gaseous escapes into the atmosphere. If anhydrous ammonia is injected deep enough, it can bond with soil systems moisture and deliver the N efficiently.

Pilot studies by the Indian Council of Agricultural Research (ICAR), conducted under a proposal from ACME Cleantech Solutions, a company planning extensive environmentally friendly ammonia production (1,200-tpd capacity), across 13 dedicated ICAR institutions during Rabi 2025-26 have shown promising outcomes in direct-seeded rice, with higher biomass and greener foliage in several plots compared with conventional urea. However, researchers also observed non-uniform crop development in some areas due to inconsistent ammonia injection, underscoring the importance of standardised consumption techniques and machinery calibrations to Indian soil systems types.

Some sector experts believe aqueous ammonia can be a viable compromise between the extreme nitrogen density of anhydrous ammonia and the safe handling of solid urea. This low-pressure fluid can be pumped into small, towable fluid fertiliser applicators or immediately dripped into irrigation sytems. however at 20-24% N, there will be a need to transport and pump four tonnes of aqueous ammonia, to deliver the same amount of N found in one tonne of anhydrous ammonia or two tonnes of urea.

Lastly, there is the environmental perspective associated with extensive ammonia consumption. When a fertiliser plant makes ammonia from fossil fuels, it generates substantial amounts of byproduct carbon dioxide (CO2). This is typically reacted with ammonia to make urea. If a extensive switch of urea to ammonia were to happen, fertiliser factories will be saddled with excess CO2 that they cannot manage unless they have cutting-edge Carbon Capture and Storage (CCS) infrastructure. If the ammonia is ‘environmentally friendly’, however, the CO2 issue is obviated.

Given these facts, expect to see only limited role to ammonia as a N delivery vehicle.

Examine and validate other options

Viewed together, the policy announcements signal India’s intent to expand its indigenous manufacturing ability to conventional fertilisers and to explore alternate nutrient delivery systems. On the latter there are several options including ammonium sulphate, ammonium nitrate, monoammonium phosphate, diammonium phosphate, calcium ammonium nitrate, and urea ammonium nitrate, that deserve greater focus. All urea sold to agricultural consumption is now the slow-emit, neem-coated variant, which is welcome as it reduces wastage. fluid nano urea, to foliar consumption, is also making inroads, however it will help to have rigorous and independent scientific validation of its benefits.

All in all, urea’s domination of the Indian nutrient market will stay. Plans to make greater it should be a high priority!