In a move set to reshape India’s energy landscape, the Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a landmark Scheme for the Promotion of Surface Coal and Lignite Gasification Projects, backed by a substantial financial outlay of ₹37,500 crore. The decision represents one of the most significant policy interventions in India’s domestic energy sector in recent years, aiming to establish a cleaner, more self-reliant pathway for the country’s vast coal reserves.
The scheme directly advances India’s national target of gasifying 100 million tonnes (MT) of coal by 2030, a goal that has gained urgency amid rising import bills and geopolitical supply-chain disruptions. India currently imports more than 50% of its liquefied natural gas (LNG), approximately 20% of its urea, virtually all of its ammonia, and between 80% and 90% of its methanol requirements. In FY2025 alone, the combined import bill for these and related commodities, including ammonium nitrate, coking coal, and dimethyl ether (DME), stood at approximately ₹2.77 lakh crore.
Scope of the Scheme
The approved scheme provides financial incentives for new surface coal and lignite gasification projects aimed at producing syngas and its downstream products. Under its framework, the financial incentive is set at a maximum of 20% of the cost of plant and machinery for any given project, disbursed in four equal instalments tied to project milestones. Key caps ensure the scheme remains broad-based: no single project may receive more than ₹5,000 crore, no single product category (except synthetic natural gas and urea) may receive more than ₹9,000 crore, and no single corporate group may receive more than ₹12,000 crore across all projects.
Projects will be selected through a transparent and competitive bidding process, with evaluation benchmarked against project cost, coal input, and syngas output. Notably, the scheme is technology-agnostic; it does not mandate the use of any particular gasification technology and actively encourages the adoption of indigenous technologies to reduce reliance on foreign engineering, procurement, and construction contractors.
Critically, incentives under this scheme are additive: they do not restrict a project’s access to benefits under the commercial coal mining regime or any other Central or State Government scheme.
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Extended Coal Linkage Tenure Under New Policy Reforms
Alongside the financial scheme, the government has introduced an important regulatory reform: coal linkage tenure under the ‘Production of Syngas leading to Coal Gasification’ sub-sector — within the Non-Regulated Sector linkage auction framework — has been extended to up to 30 years. This extended tenure addresses a long-standing concern among potential investors about policy continuity, providing the long-term certainty required to justify large capital commitments in a capital-intensive sector.
Strategic and Economic Impact
The government projects wide-ranging economic benefits from the scheme:
- Investment Mobilisation: The scheme is expected to catalyse between ₹2.5 lakh crore and ₹3.0 lakh crore in total investment across approximately 25 projects.
- Import Substitution and Energy Security: By converting domestically available coal into syngas and downstream products, including LNG substitutes, urea, ammonia, ammonium nitrate, methanol, and coking coal, India can significantly insulate itself from global price volatility and geopolitical supply disruptions, directly supporting the Atmanirbhar Bharat and Make in India objectives.
- Employment Generation: The scheme is projected to generate approximately 50,000 direct and indirect jobs, primarily in coal-bearing regions that have historically faced limited economic diversification.
- Government Revenue: Utilisation of 75 million tonnes of coal and lignite for gasification is expected to generate ₹6,300 crore annually in government revenue, with additional downstream contributions from GST and other levies.
- Technology Development: The scheme is expected to strengthen India’s domestic coal gasification capability and help build an indigenous technology ecosystem, reducing dependence on foreign expertise over time.
Building on Established Foundations
This scheme does not emerge in a vacuum. India holds one of the world’s largest reserves of coal, estimated at approximately 401 billion tonnes, as well as significant lignite reserves of around 47 billion tonnes. Coal accounts for over 55% of the country’s energy mix, making it central to any credible long-term energy strategy.
The new scheme builds on the National Coal Gasification Mission, launched in 2021, and a preceding ₹8,500 crore scheme approved in January 2024, under which eight projects worth ₹6,233 crore are already under implementation. The latest approval dramatically scales up this ambition, both in financial commitment and in the targeted volume of coal to be gasified.
Why Coal Gasification Matters Now
Coal gasification is a thermochemical process that converts coal or lignite into synthesis gas, commonly referred to as syngas, a versatile mixture of hydrogen and carbon monoxide that serves as a feedstock for producing a wide range of fuels and chemicals. Unlike direct combustion, gasification enables a far broader range of downstream uses, from fertiliser production to synthetic fuels, with the potential for cleaner processing pathways.
The timing of this approval carries additional strategic weight. Ongoing geopolitical instability in West Asia has exposed the fragility of global energy and commodity supply chains, a vulnerability that Indian policymakers have explicitly cited in the scheme’s rationale. With import costs for substitutable products running into the lakhs of crores annually, the economic case for domestic gasification has never been stronger.
With a clear financial incentive structure, extended coal linkage tenure, and a competitive project selection framework now in place, the scheme positions India to make substantive progress toward its 2030 gasification target, and, in doing so, to transform a traditional fossil fuel resource into a foundation for a more energy-secure and economically resilient future.
Source: PIB and Cabinet
