Urea Industry: Success Story

Context: Amid shortages in di-ammonium phosphate (DAP) and a general lack of manufacturing sector investments, the urea industry has seen significant installation of new production capacities and progress towards achieving the goal of Atmanirbharta.

Relevance of the Topic: Prelims: Basic understanding of Urea Industry- Present Status, Make vs Buy, etc.

Present Status of the Urea Industry

• Domestic urea production:
  • Between 2011-12 and 2023-24, India’s domestic urea production has risen from 22 million to 31.4 million tonnes.
• Urea Imports:
  • Imports fell from 7.8 mt to 7 mt after peaking at over 9.8 mt in 2020-21. 
• The current fiscal has so far recorded a further 31.7% drop in imports.

Read more: Fertilizer Subsidies: Mechanism and Challenges 

Benefits of Greenfield Projects in Urea Industry

• Increased Production: The increase in urea production is attributed to six new plants launched in FY 2019 and later:
  • Three of Hindustan Urvarak & Rasayan Ltd (HURL) 
  • Chambal Fertilisers & Chemicals
  • Matix Fertilisers & Chemicals 
  • Ramagundam Fertilizers & Chemicals Ltd (RFCL)
• Climate-friendly:
  • These greenfield plants run on natural gas (mostly imported) with an identical annual production capacity of 1.27 mt. 
• Energy-efficient:
  • They are also relatively energy-efficient, requiring only about 5 giga-calories (GCal) to produce one tonne of urea. The earlier units consume between 5.5 and 6.5 GCal.
• Favourable Location:
  • The new plants are located in the new Green Revolution- areas of eastern Uttar Pradesh, West Bengal, Bihar, Jharkhand and Telangana.
  • The older units such as the National Fertilizers Ltd’s (NFL) Bathinda, Nangal and Panipat catered solely to farmers in Punjab and Haryana.
• Indigenous feedstock:
  • There is a seventh urea plant coming up in Talcher, Odisha.
  • Unlike the six gas-based units producing ammonia with technology licensed from US, Denmark and urea from Italy or Japan, Talcher Fertilizers Ltd’s project will use coal as the feedstock. The coal is from the Talcher mines. 

The Make vs. Buy debate

• Arguments supporting “Buy”:
  • Investment:
    • New plants need an investment of around Rs 61,575 crore.
  • Price:
    • The price of imported urea in India is currently $370-403 per tonne.
    • Urea from domestic greenfield projects cost $493 per tonne. 
    • Thus it is cheaper to “buy” (import) than “make” urea in India. 
• Arguments supporting “Make”:
  • Price:
    • After deducting the levies on the feedstock cost of domestic urea, the cost will come down to $427 per tonne.
  • Transportation:
    • The imported bulk urea arriving in vessels has to be discharged at the port, before bagging and reloading for dispatch to the consumption centres. 
    • Moving this urea to the northern and eastern hinterlands would involve an additional cost of $30-35/tonne.
    • That further narrows the gap between “buy” and “make”. 
  • Other Benefits:
    • Domestic production creates employment.
    • Boosts overall economic activity that accrues from Make-in-India, as compared to simply Import-into-India.

A different Atmanirbhar urea strategy of “making” more in Northern and Eastern India, while exploring greater “buy” options for Peninsular India can be done by the Government. This along with shutting down some of the older energy-inefficient plants and also curbing urea consumption can boost the urea industry while placing India on path to achieve its Panchamrit goals.