The Group of Ministers (GoM) on fertilizers on Friday approved decontrol of urea prices and allowed fertilizer companies to raise the rate of the key farm nutrient by up to 10 per cent in the first year of the policy.

The maximum retail price (MRP) of urea stands at Rs 5,310 per tonne now which could go up by over Rs 500 if the Cabinet approves the draft policy.

The domestic urea production has been stagnant at 21 million tonnes for some years now and the remaining requirement of 6-7 million tonnes is met through imports.

Industry body Fertilizers Association of India said freeing urea prices would help boost the domestic production.

The GoM, headed by Finance Minister Pranab Mukherjee, has cleared the draft policy under which fertiliser companies, starting second year, will have the complete freedom to fix the maximum retail price of ureas based on market dynamics, sources said.

The government had in April last year introduced the nutrient-based subsidy scheme (NBS) for phosphatic and potassic fertilizers such as Di-ammonium phosphate (DAP) and Muriate of Potash (MoP) to ensure a balanced use of fertilizers.

Sources added that the ministerial panel now decided to bring urea under NBS.

The drat, prepared by the Committee of Secretaries (CoS) headed by Planning Commission member Saumitra Chaudhuri, was approved in toto, sources said.

Under the proposed urea pricing policy, the government would provide a subsidy of Rs 4,000 per tonne to gas-based urea plants.

However, the naptha-based plants would get a higher subsidy under policy and these units would get three years to get itself converted into gas-based.

The draft policy had recommended notional price pooling of natural gas for the fertilizer sector. Under notional gas price pooling, the government will calculate the subsidy on urea on the basis of weighted average pooled gas price.