Govt approves incentive for coal gasification projects with outlay of Rs 37,500 crore

The Union Cabinet on Wednesday approved a Rs 37,500-crore incentive scheme to promote coal gasification projects, aimed at boosting clean energy production and reducing dependence on forex-guzzling imports of LNG, urea, and methanol, while insulating the country from global price volatility and supply chain disruptions.

The Union Cabinet under the chairmanship of Prime Minister Narendra Modi approved the scheme for promotion of surface coal/lignite gasification projects with a financial outlay of Rs 37,500 crore, an official statement said. “An outlay of Rs 37,500 crore has been kept for this scheme, and there will be an investment of around Rs 3,000 lakh crore in this, and the projects will be put up for gasifying 75 million tonnes of coal,” Union Information & Broadcasting Minister Ashwini Vaishnaw said in a media briefing.

Vaishnaw said the country has 401 million tonnes of known coal reserves, which is enough for the next 200 years.

“We all know about the current geopolitical situation. So we have to take all the decisions to become Atma Nirbhar. In this context, a big decision on coal gasification was taken today,” he said.

Coal gasification refers to the process of converting dry fuel into synthetic gas (syngas), which is used as an alternative fuel and helps reduce carbon emissions. This process supports production of methanol, fertilizers, hydrogen and chemicals, cutting reliance on imports.

The scheme marks a major step towards accelerating the country’s coal gasification programme, advancing the national target of gasifying 100 million tonnes (MT) of coal by 2030, strengthening energy security, and reducing dependence on imports of key products such as LNG, urea, ammonia and methanol.

“At present, more than 50 per cent of the LNG is currently imported, it will be reduced. The urea which we import will also start manufacturing in India. Ammonia is 100 per cent imported today. With this development, new avenues for ammonia production will open. Methanol is currently 80-90 per cent imported that will also be made in India,” the minister said.

Under the scheme, the financial incentive at a maximum of 20 per cent of the cost of plant and machinery will be provided, the statement said, adding that the selection would be through a transparent and competitive bidding process, with an evaluation framework benchmarking project cost, coal input, and syngas output.

The incentive will be disbursed in four equal instalments and be linked to project milestones.

Under the scheme, “financial incentive for any single project (will be) capped at Rs 5,000 crore; for any single product (except synthetic natural gas and urea) (will be) capped at Rs 9,000 crore; and any single entity group (will be) capped at Rs 12,000 crore across all projects.”

Due to the scheme, the investment mobilisation is likely to be at Rs 2.5 to Rs 3 lakh crore.

The utilisation of coal and lignite is likely 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.

India holds one of the world’s largest coal reserves of 401 billion tonnes and lignite reserves of 47 billion tonnes.

Coal accounts for over 55 per cent of the country’s energy mix. Gasification converts coal/lignite into 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, such as 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.

The incentive builds on the National Coal Gasification Mission (2021) and a Rs 8,500-crore scheme approved in January 2024, under which eight projects worth Rs 6,233 crore are under implementation.

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 linkage auction framework, providing long-term policy certainty for investment in coal gasification projects.