The Cabinet on Friday announced a new policy for urea manufacturers in a bid to boost investment in the sector and help cut government subsidies.
According to the new policy, if domestic manufacturers revamp and expand their existing units, the cost of additional urea produce will be recognised at 85 percent of import parity price, subject to a ceiling of $425 a tonne, and floor price of $250 a tonne.
The move, industry officials said, could add up to 3 million tonnes capacity over two years at their existing units alone.
India has not seen any capacity addition for almost a decade, as producers blamed a crippling pricing policy and lack of returns for staying away. It imports a quarter of its annual fertiliser demand of 46 million tonnes. As a result, subsidy has trebled from a year ago, on the back of a global foodgrain shortage that boosted demand and drove up fertiliser prices.
"Urea import prices are $700 per tonne, while local cost of production works out to 13,000 rupees a tonne. So, if there is extra production locally, imports will be cut by that much," said Satish Chander, Director General of Fertiliser Association of India.