Cabinet to soon approve ₹37,500 crore incentive scheme to promote coal gasification projects

The Ministry of Coal has prepared a Cabinet note proposing a financial incentive scheme with a total outlay of ₹37,500 crore to promote surface coal and lign...

What Happened

The Ministry of Coal has prepared a Cabinet note proposing a financial incentive scheme with a total outlay of ₹37,500 crore to promote surface coal and lignite gasification projects across India.
The Cabinet approval is imminent, and the scheme is structured as a unified incentive framework — a departure from the earlier scheme which had separate categories for public sector undertakings (PSUs) and private sector entities with different caps.
Under the new scheme, the maximum financial assistance for any single project is ₹3,000 crore — up from ₹1,000–₹1,350 crore under the earlier framework, reflecting the larger scale of projects being incentivized.
The scheme supports India's National Coal Gasification Mission (NCGM), which targets 100 million tonnes (MT) of coal gasification capacity by 2030, with investments exceeding ₹64,000 crore already in the pipeline.
The objective is to reduce India's import dependence on critical commodities — including Liquefied Natural Gas (LNG), urea, ammonia, ammonium nitrate, coking coal (via Direct Reduced Iron/DRI), methanol, and Dimethyl Ether (DME) — by substituting syngas derived from domestically available coal.

Static Topic Bridges

Coal Gasification — Technology and Process

Coal gasification is a thermochemical process in which coal is partially oxidised using a controlled supply of oxygen, steam, or carbon dioxide (or combinations thereof) at high temperature and pressure, converting the solid coal into a combustible gas mixture known as synthesis gas or syngas. Unlike combustion (which burns coal to release heat directly), gasification is designed to convert the chemical energy in coal into a flexible gaseous feedstock.

Syngas composition: Primarily hydrogen (H₂) and carbon monoxide (CO), with smaller quantities of methane (CH₄), carbon dioxide (CO₂), and water vapour (H₂O). The H₂:CO ratio can be adjusted using the water-gas shift reaction to suit different downstream applications.
Surface gasification (also called ex-situ gasification): Coal is mined conventionally, then fed into a surface gasifier reactor. It is the commercially dominant form globally and the primary focus of India's incentive scheme.
Underground Coal Gasification (UCG): Coal is gasified in-situ — within its underground seam — by injecting oxidising agents through wells and extracting the product gas through separate wells. UCG can access coal seams that are too deep, too thin, or too steeply dipping for conventional mining, but it carries risks of groundwater contamination and surface subsidence.
Indian coal challenge: Indian coal typically has a high ash content (up to 35%), which requires specialized non-slagging, dry-ash gasification technologies as opposed to the slagging gasifiers suited to low-ash coal.

Connection to this news: India's ₹37,500 crore scheme focuses on surface gasification projects — the more mature, commercially proven technology pathway — to build industrial-scale syngas capacity quickly while UCG technology continues to develop separately.

Syngas Applications and Import Substitution Logic

Syngas is a versatile intermediate that can be processed into a wide range of final products, making coal gasification strategically valuable for import substitution across multiple industrial sectors simultaneously.

Fertilizers: Syngas can replace natural gas as the feedstock for ammonia synthesis (Haber-Bosch process), which in turn produces urea — India's most widely used nitrogenous fertilizer. India currently imports large volumes of urea and is heavily dependent on imported LNG for gas-based urea plants.
Methanol and DME: Syngas can be converted to methanol (for fuel blending, chemicals) and Dimethyl Ether (a clean alternative to LPG for cooking fuel and diesel substitute). India's Methanol Economy Mission aims to blend methanol in petrol and use it as a marine/aviation fuel.
Hydrogen: The H₂ component of syngas, after purification, is "grey hydrogen" (produced from fossil fuel feedstock); however, with Carbon Capture, Utilisation and Storage (CCUS), coal-derived hydrogen can be classified as "blue hydrogen".
Steel via DRI: Syngas (particularly the hydrogen fraction) can substitute coking coal in Direct Reduced Iron (DRI) production — critical for India's steel sector, which currently imports significant volumes of coking coal.
Power generation: Syngas can be used in Integrated Gasification Combined Cycle (IGCC) power plants, which are more efficient and lower-emission than conventional coal-fired thermal plants.

Connection to this news: The scheme's explicit target commodities — LNG, urea, ammonia, ammonium nitrate, coking coal for DRI, methanol, DME — map directly to syngas's downstream product portfolio, making each substituted tonne of import a measurable policy success indicator.

India's Coal Reserves and Energy Security Context

India holds the world's fourth-largest coal reserves (estimated at over 319 billion tonnes of geological resources, with proven reserves of approximately 148 billion tonnes), making coal a strategic domestic asset for energy security. However, India simultaneously imports significant quantities of coking coal (for steel) and LNG (for fertilizer and power) — a paradox that coal gasification aims to partially resolve.

India is the world's second-largest coal producer and consumer, producing approximately 1 billion tonnes annually.
Despite large reserves, India imports approximately 200–250 MT of coal annually, primarily coking/metallurgical coal for the steel industry (domestic reserves are mostly non-coking).
The National Coal Gasification Mission (NCGM), launched in 2021, set a target of 100 MT/year of coal gasification capacity by 2030.
Coal India Limited (CIL) and NLCIL (NLC India Limited) are the primary PSUs expected to anchor large gasification projects.
Coal gasification fits within India's clean energy transition as a "bridging technology" — it reduces emissions relative to direct combustion (especially with CCUS) while utilizing existing coal assets during the transition to renewables.

Connection to this news: The ₹37,500 crore scheme is a significant scaling-up of the incentive framework, increasing per-project caps threefold to attract the large capital investments required for commercial-scale gasification plants.

Key Facts & Data

Scheme outlay: ₹37,500 crore
Ministry: Ministry of Coal
Stage: Cabinet approval imminent (note prepared; approval pending as of May 3, 2026)
Maximum per-project assistance: ₹3,000 crore (up from ₹1,000–₹1,350 crore under earlier scheme)
Scheme structure: Unified (single category for PSUs and private sector)
National Coal Gasification Mission (NCGM) target: 100 MT gasification capacity by 2030
Pipeline investment: Over ₹64,000 crore already committed
Primary PSUs involved: Coal India Limited (CIL), NLCIL (NLC India Limited)
Import substitution targets: LNG, urea, ammonia, ammonium nitrate, coking coal (via DRI), methanol, DME
India's coal reserves: ~319 billion tonnes (geological resources); 4th largest globally
India's annual coal production: ~1 billion tonnes
High-ash challenge: Indian coal ash content up to 35% — requires specialized non-slagging gasifiers
Syngas components: H₂ + CO (primary), CH₄, CO₂, H₂O
Key gasification types: Surface gasification (commercial, scheme focus) and Underground Coal Gasification (UCG, emerging)