GoM approves new policy to hike urea capacity

In a move intended to boost urea production and make India self-sufficient in meeting demand for the vital farm nutrient, a group of ministers (GoM) headed by finance minister Pranab Mukherjee on Friday approved a revised investment policy offering incentives to fertilizer companies to expand and set up urea plants.

The policy will be taken up for consideration and approval by the Union cabinet in due course, said two fertilizer ministry officials on condition of anonymity.

The policy seeks to give urea manufacturers a minimum 12% post-tax return on capital. The fertilizer ministry has proposed that the government compensate companies if the price of gas exceeds $14 (around Rs.687 today) per million British thermal units (mmBtu).

It also suggested changes in the method of calculating the price of gas delivered to fertilizer units. Gas is the main feedstock of urea and accounts for up to 80% of the cost of producing the fertilizer.

If approved by the cabinet, the policy could enhance urea production capacity by up to 7-8 million tonnes (mt)— enough to meet the country’s demand— and lead to about Rs.40,000 crore of investment. As urea produced domestically is cheaper than the imported variety, it will result in significant savings in the fertilizer subsidy bill.