Govt Clears ₹37,500 Crore Coal Gasification Push to Cut Imports

The Centre has approved a ₹37,500 crore coal gasification scheme aimed at reducing import dependence and improving India’s long-term energy security. The programme targets gasification of 75 million tonnes of coal and lignite while attracting fresh industrial investment.

The Union Cabinet on Wednesday approved a massive incentive scheme for coal and lignite gasification projects, marking one of the government’s biggest interventions in the clean coal and energy security space in recent years.

The decision was taken at a Cabinet meeting chaired by Narendra Modi and announced by Ashwini Vaishnaw shortly afterwards.

Officials said the “Scheme for Promotion of Surface Coal/Lignite Gasification Projects” would involve an estimated outlay of ₹37,500 crore and is expected to catalyse investments worth ₹2.5 lakh crore to ₹3 lakh crore over the coming years.

Import Bill Pressure

The government has positioned the move as part of a broader strategy to cut India’s dependence on imported fuels, fertilisers and industrial feedstock.

According to official estimates, India spent nearly ₹2.77 lakh crore in FY2025 on imports of LNG, methanol, ammonia, urea, coking coal and ammonium nitrate. Policymakers believe domestic coal gasification can partly offset that burden.

Coal remains central to India’s energy economy, contributing more than 55 per cent of the country’s energy mix. India also possesses one of the world’s largest coal reserves, estimated at around 401 billion tonnes, along with substantial lignite reserves.

Officials familiar with the matter said the latest programme is intended to shield key sectors from volatile global commodity prices and supply disruptions triggered by geopolitical tensions.

Target of 100 MT

The newly approved scheme is also tied to India’s larger target of gasifying 100 million tonnes of coal by 2030.

Coal gasification converts coal and lignite into synthesis gas, commonly called syngas, which can then be used for electricity generation and manufacturing products such as fertilisers, methanol and chemicals.

Government officials said the policy has been designed as technology-agnostic, although preference would be given to domestic technologies to help develop an indigenous industrial ecosystem.

There is also a push to reduce reliance on foreign engineering and procurement contractors in future projects.

Incentive Structure Explained

Under the scheme, companies setting up eligible projects can receive incentives of up to 20 per cent of plant and machinery costs.

The financial support will be released in phases linked to project milestones, and beneficiaries will be selected through a competitive bidding process.

The Cabinet has also fixed upper caps for financial assistance:

• ₹5,000 crore for a single project

• ₹9,000 crore for one product category, excluding urea and synthetic natural gas

• ₹12,000 crore for a single corporate group across projects

Officials said the caps are aimed at ensuring wider industry participation and avoiding concentration of benefits.

Coal Linkage Extended

In another significant policy shift, the government has extended coal linkage tenure to 30 years for projects under the “Production of Syngas Leading to Coal Gasification” category.

Industry executives have long argued that shorter linkage periods created uncertainty for large investments with long gestation cycles.

The extension is expected to improve financing prospects for future coal gasification plants, especially in the private sector.

Jobs in Coal Regions

The government estimates that nearly 25 projects could emerge under the programme.

These projects are expected to generate around 50,000 direct and indirect jobs, particularly in coal-producing states such as Jharkhand, Odisha, Chhattisgarh and parts of Madhya Pradesh.

Officials also projected annual revenues of roughly ₹6,300 crore through utilisation of 75 million tonnes of coal and lignite, apart from additional GST collections and industrial taxes.

Earlier Projects Underway

The latest approval builds on the National Coal Gasification Mission launched in 2021.

It also expands an earlier ₹8,500 crore coal gasification package approved in January 2024. Under that programme, eight projects involving investments of over ₹6,200 crore are already being implemented.

Energy sector analysts say the success of the latest initiative will depend heavily on commercial viability, technology efficiency and the pace of downstream industrial demand.

Even so, Wednesday’s decision signals that the government sees coal gasification as a strategic bridge between conventional fossil fuel dependence and a more diversified energy system.