Cabinet clears ₹37,500 crore coal gasification scheme amid govt push to curb import bill

The Union Cabinet on Wednesday approved a ₹37,500 crore incentive scheme to accelerate coal gasification projects as part of the government’s push to curb fuel imports and strengthen energy security amid heightened geopolitical tensions in West Asia.

"Since India has enough coal reserves for nearly 200 years, we are working on producing gas from coal," Information and Broadcasting Minister Ashwini Vaishnaw told reporters after the cabinet meeting.

India has one of the world's largest coal reserves, estimated at about 401 billion tonnes, and lignite reserves of around 47 billion tonnes.

Coal accounts for more than 55% of the country's energy mix.

Producing synthetic gas from coal

The coal gasification scheme is aimed at promoting the conversion of domestically mined coal into synthetic gas, which can be used to produce cleaner fuels, fertilisers such as urea and a range of industrial chemicals.

In the coal gasification process, coal is crushed, prepared, and heated at very high temperatures and pressure inside a furnace, where it converts into synthesis gas, or ‘syngas’.

"This syngas, mainly made up of carbon monoxide and hydrogen, can be used like natural gas and can also help generate power and LPG-equivalent fuel," Vaishnaw added.

Incentives and investment targets

Under the scheme, financial incentives of up to 20% of the cost of plant and machinery will be provided through a competitive bidding process. The total support is expected to facilitate gasification of around 75 million tonnes of coal and lignite.

The incentive for a single project has been capped at ₹5,000 crore, while any one entity group can receive up to ₹12,000 crore across multiple projects.

The Cabinet also approved extension of coal linkage tenure to 30 years under the "Production of Syngas leading to Coal Gasification" sub-sector in the non-regulated sector linkage auction framework.

According to the government, the scheme is expected to attract investments of ₹2.5 lakh crore to ₹3 lakh crore and generate around 50,000 direct and indirect jobs across 25 projects, particularly in coal-bearing regions.

The government said utilisation of 75 million tonnes of coal under the programme could generate about ₹6,300 crore annually for central and state governments, apart from revenue from GST and other levies.

The government noted that India spent about ₹2.77 lakh crore in 2024-25 on imports of products such as liquefied natural gas (LNG), urea, ammonium nitrate, ammonia, coking coal and methanol, all of which can be partially substituted through coal gasification.

The new scheme builds on the National Coal Gasification Mission launched in 2021 and a ₹8,500-crore programme approved in January 2024, under which eight projects worth ₹6,233 crore are currently under implementation.