May 1, 2012

An important change in the draft fertiliser policy such as to increase capital expenditure limits, is what the Indian government is planning to make for the new and existing fertiliser plants.

The change in the policy may attract more investments worth INR400-450 billion (US$7.6-8.5 billion) to the fertiliser sector. The change may also enhance output capacity by seven to eight million tonnes in the urea sector, which would be sufficient to meet the country's demand.

Prior to this in September 2008, the government had announced a urea investment policy. But the policy failed to attract any investment in the urea sector as it was considered unviable.

A Group of Ministers (GoM) led by finance minister Pranab Mukherjee in a meeting held on February 24, 2012, gave in-principle clearance to the draft policy that aims to attract the investments to the urea sector.

The GoM has also asked the Fertiliser Ministry to consider the maximum capital expenditures to be allowed to a company that plans to set up a new unit. The draft policy plans to offer minimum 12% post-tax return on capital to the urea manufacturers.

If the new policy is approved by the Cabinet, sufficient urea would be produced domestically, which would ultimately result in savings in the fertiliser subsidy bill.