Union Cabinet Approves Scheme to Promote Coal/Lignite Gasification Projects

The Union Cabinet has approved a scheme for the promotion of surface coal and lignite gasification projects with a financial outlay of ₹37,500 crore to accelerate coal gasification in India. The initiative aims to enhance the utilization of domestic coal resources, reduce dependence on imports, and promote cleaner energy alternatives.

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¨     The Scheme marks a major step towards accelerating India’s coal/lignite gasification programme and advancing the national target of gasifying 100 Million Tonnes (MT) of coal by 2030.

¨     It seeks to strengthen India’s energy security and reduce dependence on imports of key products such as LNG (more than 50% imported), urea (~20% imported), ammonia (~100% imported), and methanol (~80–90% imported).

¨     The initiative also promotes cleaner and more efficient utilisation of coal by encouraging production of syngas and downstream products such as fertilisers, chemicals, and synthetic fuels.

¨     In a significant accompanying reform, the Government has also extended coal linkage tenure up to 30 years under the Non-Regulated Sector (NRS) linkage auction framework for coal gasification projects, thereby providing long-term policy certainty and improving investor confidence.

Need for the Scheme

¨     India possesses one of the world’s largest coal reserves (around 401 billion tonnes) and lignite reserves (around 47 billion tonnes), while coal continues to account for more than 55% of the country’s energy mix. This necessitates more efficient and value-added utilisation of domestic coal resources.

¨     Coal gasification enables conversion of coal/lignite into syngas, which can be used for domestic production of fuels, fertilisers, chemicals, methanol, ammonia, and other industrial products, thereby reducing dependence on high-value imports.

¨     India’s import bill for products such as LNG, urea, ammonia, ammonium nitrate, methanol, DME, and coking coal stood at approximately ₹2.77 lakh crore in FY2025, highlighting vulnerabilities arising from global price volatility and geopolitical disruptions, particularly in West Asia.

¨     The new scheme builds upon the National Coal Gasification Mission (2021) and the earlier ₹8,500 crore coal gasification scheme approved in January 2024, under which eight projects worth ₹6,233 crore are already under implementation.

Key Features of the Scheme

Financial and Institutional Framework

¨     The Scheme has a total financial outlay of ₹37,500 crore to incentivise new surface coal/lignite gasification projects for the production of syngas and downstream products, targeting gasification of nearly 75 Million Tonnes of coal/lignite.

¨     Financial incentives will be provided up to a maximum of 20% of the cost of plant and machinery for eligible projects.

The scheme prescribes financial ceilings

¨     Maximum ₹5,000 crore for a single project.

¨     Maximum ₹9,000 crore for a single product category (except Synthetic Natural Gas and Urea).

¨     Maximum ₹12,000 crore for a single entity group across all projects.

Selection of projects will be undertaken through a transparent and competitive bidding process based on parameters such as project cost, coal input efficiency, and syngas output. Incentives under the scheme will be in addition to benefits available under the commercial coal mining regime and other Central or State Government schemes.

Technology and Industrial Development

¨     The scheme follows a technology-agnostic approach while encouraging the adoption and development of indigenous coal gasification technologies.

¨     It seeks to strengthen India’s domestic coal gasification ecosystem and reduce reliance on foreign Engineering, Procurement and Construction (EPC) contractors.

Significance of the Scheme

¨     Enhancing Energy Security and Import Substitution: The scheme promotes diversified utilisation of domestic coal resources and reduces dependence on high-value imports, thereby insulating India from global price volatility and geopolitical supply-chain disruptions.

¨     Supporting Atmanirbhar Bharat and Industrial Growth: Increased domestic production of syngas and downstream products will strengthen strategic industries and advance the objectives of Atmanirbhar Bharat and Make in India.

¨     Investment and Employment Generation: The scheme is expected to mobilise investments worth ₹2.5–3 lakh crore and generate nearly 50,000 direct and indirect jobs across around 25 projects in coal-bearing regions.

¨     Revenue Generation and Regional Development: Gasification of nearly 75 Million Tonnes of coal/lignite is expected to generate annual revenues of around ₹6,300 crore, along with additional downstream revenue through GST and related economic activities.

¨     Development of Indigenous Technology Ecosystem: By encouraging indigenous coal gasification technologies and reducing reliance on foreign EPC contractors, the scheme seeks to strengthen India’s domestic technological and industrial capabilities in the energy sector.