It may or may not be a coincidence that a fortnight after the US announced $500 million in funding to expand fertiliser production following the Iran war, India unveiled the National Investment Policy for Urea-2026 for Atmanirbhar Bharat (NIPU-2026). The policy aims to attract investment in gas-based urea plants to bridge the domestic supply gap and reduce foreign exchange outgo.

The Ministry of Chemicals and Fertilizers said the earlier National Investment Policy of 2012 had added six gas-based urea plants, taking the total to 33 plants with an installed capacity of 29.4 million tonnes (MT), of which 25 are gas-based. The new policy is expected to add another 8-9 plants with a combined capacity of 10 MT.

The ministry argued the policy was necessary because urea demand had risen, the earlier policy expired in 2019 and it had received proposals for new plants. It also said revised cost structures would save Rs 250 crore in foreign exchange outgo for every new plant compared with those set up under the 2012 policy.

The policy appears timely. Urea prices doubled in April after the Iran war before moderating in June as China resumed exports. India imports 18-22% of its finished urea, spending $5.2 billion in FY26.

However, expanding domestic production may not be the right response when excessive urea use has already created soil nutrient imbalance and environmental damage, believe experts.

Studies show 75% of the nitrogen supplied through urea escapes into the environment, polluting soil, water and air.

More Urea, More LNG

More gas-based urea plants mean entrenching use and import dependence for its main feedstock, natural gas or LNG.

A 2025 parliamentary panel said LNG accounts for 90% of urea production costs, while a 2026 study by the Indian Council for Research on International Economic Relations (ICRIER) estimated that 80% of the LNG consumed by Indian urea plants is imported. India itself imports about half of its LNG requirements.

India’s import dependence on LNG has rapidly risen in recent years from 27.8% in FY12 to 50.1% in FY26, according to Petroleum Planning and Analysis Cell (PPAC) data, driven by greater use of gas and declining domestic production.

The problem is unlikely to disappear even if new plants are built.

The additional 10 MT of capacity fills exactly today's domestic supply gap, but urea demand is growing by around 5% annually. By the time the plants are commissioned, demand will have risen further, meaning imports of both finished urea and LNG are likely to continue.

In short, it is a double whammy.

Instead, a better approach would be to reduce urea use by gradually increasing the use of organic or natural manures and also explore alternatives.

“We have been trying to move away from urea for a long time. The imperative is to cut its usage and raise its efficiency over time. We need not copy the US, as we have done for decades; the US’s input-intensive approach to nitrogen suits its agroeconomic conditions, not ours,” GV Ramanjaneyulu, executive director of the Centre for Sustainable Agriculture, told The Core.

Possible alternatives already under discussion include coal gasification technology, being pursued under the National Coal Gasification Mission, and greater research into nano-urea, nano-DAP and nano-NPK fertilisers developed by IFFCO.

Both, however, remain at an early stage.

Replacing urea with organic manure is also possible but would be a gradual process. Agricultural scientists argue that some of the investment planned for new gas-based plants could instead support the transition to organic manures while funding research to make coal-to-urea production commercially viable and improve the efficiency of nano-urea, which is currently permitted to replace up to 25% of conventional urea use.

Why Demand Matters

India currently consumes about 40 MT urea annually, growing gradually over time since the first urea plant was set up in Sindri in 1959.

This makes it the country's primary source of nitrogen, one of the three key nutrients required for crop growth.

The usage has been encouraged for decades by a subsidy regime that keeps prices artificially low. A 45-kg bag that cost farmers Rs 266.5 in April 2026 had an actual production cost of about Rs 4,000. Subsidies for phosphatic and potassic fertilisers, by contrast, are variable and governed by the Nutrient-Based Subsidy scheme.

The result is excessive nitrogen use.

The government told Parliament earlier this year that against the recommended nutrient ratio of 4:2:1 for nitrogen, phosphorus and potassium, actual consumption during the past three years stood at 9.8:3.7:1.

Nandula Raghuram, Chair Emeritus of the International Nitrogen Initiative, believes India should focus on reducing demand instead of expanding supply.

"It is high time our policies focus on demand management, rather than continuing supply addiction of urea,” Raghuram told The Core.

Expanding gas-based urea production also risks reinforcing the subsidy regime that has encouraged overuse for decades.

Can India Break Its Urea Habit?

One way to reduce the subsidy burden, the ICRIER study suggested, is to shift from price subsidies paid to industry to direct cash transfers for farmers or bring urea under the Nutrient-Based Subsidy (NBS) regime to correct price distortions.

India already recognises the need to reduce dependence on chemical fertilisers. It runs schemes such as PM-PRANAM, PKVY, NMNF, MOVCDNER and GOBARdhan to promote organic and natural manures. But progress has been slow. The latest official data show only 4.2% of the country's net cropped area was under organic farming in 2022.

Sikkim's transition to 100% organic farming between 2006 and 2016 shows such a shift is possible, though it may take years.

The European Union has also moved in the same direction, banning synthetic mineral nitrogen fertilisers in organic farming from 2018 and setting a target of bringing 25% of agricultural land under organic production by 2030.

“We must declare a 'peak urea' consumption of about 30 MT and gradually phase it down to the extent possible, by hugely ramping up production of pulses and leguminous oilseeds, tripling the current cattle dung utilisation from 17%, and stop 1G ethanol... It is eminently feasible to shift at least a quarter of our crop land... to reduce our import dependence on pulses and save our population from protein malnutrition,” said Raghuram.

Pulses and leguminous oilseeds naturally fix atmospheric nitrogen in the soil, reducing the need for urea. Organic manures also improve nitrogen and water retention, further lowering fertiliser requirements.

Recent cropping trends, however, point in the opposite direction. Kharif sowing data up to July 13 show acreage under sugarcane has risen despite deficient rainfall, while pulses, oilseeds and coarse cereals have declined.

This comes even as El Niño has left rainfall 24% below normal.

A New Model

The debate over urea is ultimately part of a larger question about India's agricultural model.

In 2022, NITI Aayog proposed a "new paradigm" based on agroecology rather than an agro-industrial approach. It argued that industrial farming, characterised by crop monocultures, chemical fertilisers, pesticides and excessive irrigation, had caused severe environmental damage while failing to improve agricultural labour productivity sustainably.

Instead, it advocated organic and natural farming that relies on ecological processes, biodiversity and locally available resources. It also cited field studies showing natural farming could reduce input costs and, in many cases, match or exceed conventional yields. A parliamentary committee in 2025 similarly urged the government to expand the use of organic and bio-fertilisers to improve soil health and environmental sustainability.

Ramanjaneyulu argued that policy has long encouraged excessive urea use.

"The Indian government and its agencies have created a mindset that urea is essential," he said, adding that overuse is concentrated in rice-wheat and rice-rice cropping systems, whereas rotations involving pulses require much less external nitrogen.

"Instead of short-term solution like adding new urea plants, we must make long-term plans and strategies to build soil health, reduce nitrogen loss in soil and promote the cultivation of pulses."

That, he said, requires moving away from an industry-centric approach towards one that is farmer-centric and community-driven.

There is also another well-recognised approach.

Integrated nutrient management, which combines chemical fertilisers with organic and biological sources of nutrients, has long been recommended by agricultural scientists. Long-term studies by the Indian Council of Agricultural Research showed that this approach improves soil fertility by supplying organic carbon, nitrogen, phosphorus and potassium while enhancing biological activity in the soil.

The government's objective of reducing import dependence and foreign exchange outgo is understandable, particularly after the recent spike in global fertiliser prices. But expanding gas-based urea production addresses only the supply side of the problem.

Without parallel efforts to curb demand, correct subsidy distortions and improve soil health, India risks becoming more dependent on imported LNG while reinforcing a system that has already degraded its soils. The bigger challenge is not producing more urea, but needing less of it.