Cabinet unveils Rs 37,500 crore coal gasification scheme to cut energy imports

The Union Cabinet on Wednesday approved a Rs 37,500 crore incentive scheme for surface coal and lignite gasification projects, aiming to strengthen India’s energy security, reduce dependence on imported fuels and chemicals, and accelerate the country’s transition towards cleaner utilisation of domestic coal resources.

‎Announcing the decision after the Cabinet meeting, Union Information and Broadcasting Minister Ashwini Vaishnaw said the initiative would support India’s target of gasifying 100 million tonnes of coal by 2030 and promote large-scale production of syngas and related downstream products.

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‎“The scheme marks a major step towards accelerating India’s coal and lignite gasification programme,” Vaishnaw said, adding that it would help reduce imports of key commodities such as liquefied natural gas (LNG), urea, ammonia and methanol.

‎According to the government, the scheme is designed to encourage the establishment of new surface coal and lignite gasification projects with a target of gasifying nearly 75 million tonnes of coal and lignite.

‎Officials said financial incentives of up to 20 per cent of plant and machinery costs would be provided through a transparent competitive bidding process that would evaluate projects on the basis of cost, coal utilisation and syngas output.

‎The incentives will be released in four equal instalments linked to project milestones. The government has capped support for a single project at Rs 5,000 crore, while incentives for any one product category — except synthetic natural gas and urea — will be limited to Rs 9,000 crore. A single corporate group will not be eligible for more than Rs 12,000 crore across all approved projects.

‎In a parallel reform aimed at improving long-term investor confidence, the Centre has also extended coal linkage tenure up to 30 years under the “Production of Syngas leading to Coal Gasification” category in the Non-Regulated Sector linkage auction framework.

‎The Cabinet note said the extended linkage period would provide policy certainty for investors in coal gasification infrastructure, which requires high capital investment and long gestation periods.

‎The government expects the scheme to attract investments of Rs 2.5 lakh crore to Rs 3 lakh crore and generate nearly 50,000 direct and indirect jobs across 25 projects, particularly in coal-producing regions.

‎Officials estimated that utilisation of 75 million tonnes of coal under the programme could generate annual revenues of around Rs 6,300 crore, apart from additional GST collections and other downstream tax revenues.

‎The Centre said the scheme was strategically important as India remained heavily reliant on imports for several critical products, including more than half of its LNG requirement, nearly 20 per cent of urea demand, almost the entire ammonia requirement and around 80-90 per cent of methanol consumption.

‎According to government estimates, India’s import bill for LNG, urea, ammonium nitrate, ammonia, coking coal, methanol, dimethyl ether and other substitutable products stood at approximately Rs 2.77 lakh crore in FY2025. Officials said recent geopolitical tensions in West Asia had exposed vulnerabilities in global supply chains and price fluctuations.
‎Coal gasification technology converts coal and lignite into synthesis gas, or syngas, which can be used for manufacturing fuels, fertilisers and industrial chemicals within the country.

‎The government also said the initiative would help build India’s indigenous coal gasification technology ecosystem while reducing dependence on foreign engineering and construction firms.

‎India possesses around 401 billion tonnes of coal reserves and about 47 billion tonnes of lignite reserves, with coal continuing to account for more than 55 per cent of the country’s energy mix.

‎The newly approved programme expands upon the National Coal Gasification Mission launched in 2021 and follows the Rs 8,500 crore coal gasification support scheme approved in January 2024, under which eight projects worth Rs 6,233 crore are already being implemented.