In the same breath, the ministry has allowed mini-ratna Rashtriya Chemicals & Fertilisers to go ahead with its Rs 1,332 crore expansion. GNFC, on the other hand, is part owned by the Gujarat state government.

While the farmgate price - the price at which farmers buy urea - is around Rs 3,600 a tonne, the cost of production of most fertiliser companies is around Rs 5,500-7,500 per tonne.

This implies that the government has to dole out a subsidy of between Rs 2,000 and Rs 4,000 a tonne for every tonne of urea produced. If capacities are increased further, the extent of subsidy will also increase, appears to be the government's logic.

Officials of GNFC said that the company has been asked to stall the project for the time being, and will wait till the new government takes over at the Centre for further directions.

Analysts said that the government's move could be prompted by the fact that RCF's cost of production, of around Rs 5,500 a tonne, was marginally lower that of GNFC's, and to that extent the subsidy would be lower. Also, Maharashtra, where RCF's project is to come up, is urea-deficient.

GNFC's project envisaged setting up 1,850 tonne per day of urea and 1,350 tonne per day of ammonia at its existing plant at Bharuch in Gujarat. The company said it was hopeful of bringing down the project cost by around Rs 200 crore by optimally utilising its existing workforce at the new plant and due to other synergies that would accrue to it.

Most of the private sector manufacturers of urea have put their expansion plans on hold due to lack of any clear-cut pricing policy. For instance, Tata Chemicals had announced that it will not go ahead with its plan to double the capacity of urea at Babrala in Uttar Pradesh for the same reason.

Further, the company was also unhappy about the provisional retention price for urea declared by the government for its Babrala plant, as the price at which it produced urea was higher. The company is still awaiting a new rentention pricing policy before taking the crucial decision on the Babrala expansion.

The AV Birla-controlled Indo Gulf Corporation is yet another company which has diversified into copper as the fertiliser policy was not particularly unfavourable for greenfield projects.

With international prices having dropped to around $80 a tonne, import prices are almost at par with the farmgate price. However, despite import of urea falling under open general licence (OGL), the government has not allowed any significant import of urea as compared with previous years through MMTC, the canalising agency.

The government had earlier set up the Hanumantha Rao Committee which recommended a free pricing regime, but no action has yet been taken on the recommendations.