Cabinet approves coal gasification scheme, pegs outlay at Rs.37,500 crore

The Union Cabinet chaired by the Prime Minister Narendra Modi, on May 13, 2026, approved a Scheme for Promotion of Surface Coal/Lignite Gasification Projects with a financial outlay of Rs.37,500 crore.

The scheme marks a major step towards accelerating India’s coal/lignite gasification programme, advancing the national target of gasifying 100 million tonnes of coal by 2030, strengthening energy security, and reducing dependence on imports of key products such as LNG (more than 50 per cent imported), urea (around 20 per cent imported), ammonia (almost entirely imported), and methanol (80 per cent to 90 per cent imported).

In a significant accompanying reform, the Government has also extended coal linkage tenure up to 30 years under the “Production of Syngas leading to Coal Gasification” sub-sector in the Non-Regulated Sector (NRS) linkage auction framework, providing long-term policy certainty for investment in coal gasification projects, a government release said.

 

Salient Features:

• Total financial outlay of Rs.37,500 crore to incentivize new surface coal/lignite gasification projects for production of syngas and its downstream products, targeting gasification of approximately 75 million tonnes of of coal/lignite
• Financial incentive provided at a maximum of 20 per cent of the cost of plant and machinery
• Selection through a transparent and competitive bidding process, with an evaluation framework benchmarking project cost, coal input, and syngas output
• Incentive disbursed in four equal instalments, linked to project milestones
• Financial incentive for any single project capped at Rs.5,000 crore; for any single product (except synthetic natural gas and urea) capped at Rs.9,000 crore; and any single entity group capped at Rs.12,000 crore across all projects.
• Incentive under this scheme is in addition to, and does not restrict access to, incentives under the commercial coal mining regime or schemes of other Central/State Government ministries.
• The scheme is technology-agnostic; adoption of indigenous technologies is encouraged

 

 

Strategic and economic benefits

• Expected Investment Mobilisation: Rs.2.5- 3.0 lakh crore
• Energy Security & Import Substitution: Diversified use of coal resources and substitutes imports of LNG, urea, ammonia, ammonium nitrate, methanol, and coking coal, insulating India from global price volatility and geopolitical supply-chain disruptions and advancing the “Atmanirbhar Bharat” and “Make in India” objectives
• Employment Generation: The scheme is projected to create around 50,000 (Direct + Indirect) jobs across 25 projects in coal-bearing regions
• Revenue to government: coal/lignite utilization is expected to generate Rs.6,300 crore annually from 75 million tonnes of gasification envisaged under the scheme, plus downstream revenue from GST and other levies.
• Technology Ecosystem: Strengthens India’s domestic surface coal gasification capability by advancing indigenous technologies and minimising reliance on foreign EPC contractors.

 

Strategic value creation

Offering insights into the new scheme, Atanu Mukherjee, CEO, Dastur Energy, said, “Coal gasification gives India a pathway to convert its domestic coal and lignite resources into syngas and downstream industrial molecules such as methanol, ammonia, DME, SNG, hydrogen and fertiliser feedstock. These are precisely the products where India continues to face significant import exposure and pricing volatility. If developed at scale and integrated with downstream industrial ecosystems, coal gasification can support import substitution, improve current-account stability, strengthen domestic manufacturing and create a more resilient industrial feedstock base.

However, incentives alone will not guarantee success. The right gasification technology must be matched to India’s high-ash coal characteristics, which are very different from the coal used in many global gasification systems. Technology selection, coal chemistry, project scale, downstream integration, financing structures and carbon management will determine whether these projects become commercially viable and bankable over the long term.

The success of this programme should therefore not be measured only by the number of tonnes of coal gasified. It should be measured by the strategic value created — imports substituted, industrial feedstocks produced domestically, downstream industries enabled, carbon managed effectively and the ability of projects to sustain themselves economically over time. With the right technology choices, integrated coal-to-chemicals clusters and appropriate CCUS integration, coal gasification can become an important pillar of India’s energy security, industrial transformation and long-term economic resilience strategy.”

 

Background

India holds one of the world’s largest coal reserves (401 billion tonnes) and lignite reserves (47 billion tonnes). Coal accounts for over 55 per cent of the country’s energy mix. Gasification converts coal/lignite into ‘synthesis gas’ (syngas), a versatile feedstock for producing fuels and chemicals domestically, enabling India to substitute high-value imports and insulate itself from global supply disruptions and price volatility.

India’s import bill for key substitutable products LNG, urea, ammonium nitrate, ammonia, coking coal, methanol, DME and others stood at approximately Rs.2.77 lakh crore in FY25, a vulnerability further exposed by the ongoing geopolitical situation in West Asia.

Building on the National Coal Gasification Mission (2021) and a Rs.8,500 crore scheme approved in January 2024 (under which 8 projects worth Rs.6,233 crore are under implementation), the new Scheme builds on this momentum with significantly enhanced support.

Also read: Cabinet approves Rs.2,585-crore Small Hydro Power Development Scheme, envisages 1,500 MW capacity

Featured photograph (source: enviropolengineers.in) is for representation only