Cabinet Approves ₹37,500 Crore Coal Gasification Scheme to Boost Energy Security and Cut Import Dependence

Coal gasification converts coal and lignite into synthesis gas (syngas), which can then be used to manufacture a wide range of fuels, fertilisers and industrial chemicals domestically.

In one of the country's largest clean coal and industrial transformation initiatives, the Union Cabinet chaired by Prime Minister Narendra Modi has approved a massive ₹37,500 crore Scheme for Promotion of Surface Coal and Lignite Gasification Projects, aimed at accelerating India's transition toward domestic production of strategic fuels, chemicals and industrial feedstocks.

The scheme is expected to play a central role in India's ambition to gasify 100 million tonnes (MT) of coal by 2030, while simultaneously reducing the country's heavy dependence on imported products such as LNG, methanol, ammonia and fertiliser inputs.

Officials say the initiative represents a major step toward strengthening India's energy security, industrial resilience and self-reliance under the vision of Atmanirbhar Bharat and Make in India.

Major Push for Domestic Energy and Chemical Production

Coal gasification converts coal and lignite into synthesis gas (syngas), which can then be used to manufacture a wide range of fuels, fertilisers and industrial chemicals domestically.

The technology enables coal to be transformed into valuable downstream products such as:

• Synthetic Natural Gas (SNG)

• Methanol

• Ammonia

• Urea

• Dimethyl Ether (DME)

• Ammonium Nitrate

• Hydrogen-based products

• Industrial chemicals

India currently relies heavily on imports for many of these critical products, creating vulnerabilities linked to global price volatility and geopolitical disruptions.

Government officials noted that India imports:

• More than 50% of LNG

• Around 20% of urea

• Nearly 100% of ammonia

• Approximately 80–90% of methanol

The country's import bill for key substitutable products — including LNG, ammonia, urea, methanol, ammonium nitrate and coking coal — stood at approximately ₹2.77 lakh crore in FY2025.

The government said recent geopolitical tensions, particularly in West Asia, have further exposed the risks associated with import dependence.

Massive Financial Incentives for Coal Gasification Projects

The newly approved scheme provides a total financial outlay of ₹37,500 crore to support the establishment of new surface coal and lignite gasification projects.

The programme targets the gasification of approximately 75 million tonnes of coal and lignite, creating one of the world's largest coal gasification ecosystems.

Key Features of the Scheme Include:

• Financial incentive of up to 20% of plant and machinery costs

• Competitive and transparent bidding-based project selection

• Incentive disbursement linked to project milestones

• Technology-agnostic framework encouraging innovation

• Strong support for indigenous technologies

Incentive Caps:

• Maximum ₹5,000 crore per project

• Maximum ₹9,000 crore per product category (except urea and synthetic natural gas)

• Maximum ₹12,000 crore per entity group across all projects

Officials clarified that incentives under this scheme will remain separate from benefits available under commercial coal mining reforms and other state or central government schemes.

Long-Term Coal Linkages to Improve Investor Confidence

In a major accompanying reform aimed at encouraging large-scale investment, the government has extended coal linkage tenure to 30 years under the "Production of Syngas leading to Coal Gasification" category within the Non-Regulated Sector (NRS) linkage auction framework.

Industry experts say long-term coal linkage certainty is critical for attracting investment into capital-intensive gasification infrastructure projects, which require stable feedstock supply over decades.

The policy change is expected to significantly improve investor confidence and accelerate private sector participation.

Expected to Mobilise Up to ₹3 Lakh Crore in Investments

Officials estimate that the scheme could mobilise between ₹2.5 lakh crore and ₹3 lakh crore in overall investments across the coal gasification value chain.

The initiative is expected to stimulate growth in:

• Heavy industry

• Fertiliser manufacturing

• Petrochemicals

• Clean fuel production

• Industrial chemicals

• Energy infrastructure

• Coal-based downstream manufacturing

Industry analysts say the programme could become a major industrial growth driver in coal-bearing states by encouraging the creation of integrated energy and manufacturing clusters.

50,000 Jobs Expected Across Coal Regions

The government estimates that the scheme could generate around 50,000 direct and indirect jobs across approximately 25 projects expected to be developed under the programme.

The employment impact is likely to be concentrated in coal-bearing regions where large-scale industrial infrastructure and associated economic ecosystems could emerge.

The initiative is expected to support:

• Engineering and construction jobs

• Manufacturing employment

• Logistics and transportation

• Chemical processing industries

• Technology and research sectors

• Ancillary MSME development

Experts believe the programme could contribute significantly to economic diversification in coal-producing states.

Strengthening India's Indigenous Technology Ecosystem

A major strategic focus of the scheme is the development of domestic coal gasification technologies and reduced dependence on foreign EPC (Engineering, Procurement and Construction) contractors.

The government said the programme encourages the adoption and scaling of indigenous technologies to strengthen India's long-term technological capabilities.

"Technology Ecosystem: Strengthens India's domestic surface coal gasification capability by advancing indigenous technologies and minimising reliance on foreign EPC contractors," the government stated.

Industry experts say building domestic capabilities in coal conversion technologies could position India as a future exporter of industrial process technologies and advanced energy solutions.

Environmental and Energy Transition Considerations

Although coal remains one of India's largest energy sources, policymakers increasingly view gasification as a cleaner and more efficient pathway for coal utilisation compared to direct combustion.

Gasification can potentially:

• Improve energy efficiency

• Reduce particulate emissions

• Support cleaner industrial processes

• Enable chemical feedstock production

• Reduce reliance on imported fossil fuels

However, environmental analysts note that large-scale coal gasification projects will still require careful carbon management strategies and long-term integration with cleaner technologies such as carbon capture and green hydrogen.

Builds on National Coal Gasification Mission

The new scheme expands upon the momentum generated under the National Coal Gasification Mission launched in 2021.

In January 2024, the government had already approved an earlier ₹8,500 crore support scheme, under which eight projects worth approximately ₹6,233 crore are currently under implementation.

The latest approval significantly scales up the ambition and financial backing for India's coal gasification roadmap.

Strategic Shift Toward Resource Security

India possesses some of the world's largest coal reserves:

• Approximately 401 billion tonnes of coal

• Around 47 billion tonnes of lignite

Coal currently contributes more than 55% of India's energy mix.

Government officials argue that converting these domestic resources into higher-value industrial products can help reduce strategic vulnerabilities while supporting long-term industrial growth.

The scheme is being viewed as part of India's broader effort to:

• Enhance energy independence

• Build resilient supply chains

• Expand domestic manufacturing

• Reduce import dependence

• Strengthen industrial competitiveness

As India navigates rising global energy uncertainty and geopolitical disruptions, the coal gasification programme is expected to become a central pillar of the country's long-term industrial and energy security strategy.