Coal gasification: ₹37,500 cr scheme nears approval

Cabinet clearance expected for fresh coal gasification push

The Union Cabinet is likely to approve soon a financial incentive scheme worth ₹37,500 crore to promote coal gasification projects, according to sources. The proposal is positioned as a clean energy-linked move that also targets lower import dependence for several industrial commodities. The Ministry of Coal has prepared a Cabinet note for the scheme, the sources said. If cleared, the programme would mark a scale-up of India’s support for surface coal and lignite gasification projects. The government has been highlighting coal gasification as a route to convert domestic coal into fuels and chemicals. The push comes amid continued focus on energy security and vulnerability in global supply chains.

What the proposed ₹37,500 crore scheme aims to do

The proposed scheme is designed to accelerate surface coal and lignite gasification projects across India. The stated objective is to support self-reliance by reducing import dependence on a set of critical commodities. These include LNG, urea, ammonium nitrate, ammonia, coking coal via DRI, methanol and DME. The scheme also seeks to enable enhanced utilisation of domestic coal and lignite resources for production of fuels and chemicals. A key policy anchor is the national target of 100 million tonnes of coal gasification capacity by 2030. Sources said the Cabinet could consider the proposal in the near term.

Unified structure, with a higher per-project cap

Unlike the earlier incentive programme that was split into categories, the new proposal is described as a unified scheme with no categories. The maximum financial assistance for a single project is proposed at ₹3,000 crore, sources said. This is materially higher than the project-level ceilings under the earlier framework. By raising the cap, the scheme appears designed to support larger projects or offer deeper viability support where economics remain challenging. The proposed outlay is also described in some reports as a fresh round of incentives of about ₹35,000–₹37,000 crore, subject to Cabinet approval. The scheme has also been referred to as the V-KALP scheme in source-based reporting.

How this differs from the earlier incentive framework

The earlier incentive scheme for coal/lignite gasification projects had financial support split across three categories. Sources said the maximum incentive earlier was ₹1,000 crore per project for the private sector and ₹1,350 crore per project for PSUs. That programme carried an overall outlay of ₹8,500 crore and was approved by the Union Cabinet in January 2024. It provided viability gap funding across Category I (PSUs), Category II (private sector and PSUs), and Category III (demonstration projects and/or small-scale plants). Under that 2024 framework, approved projects were given a seven-year window for commissioning, with a final deadline extending to 2030–31.

The 2024 scheme, category-wise details

In Category I, ₹4,050 crore was provisioned for government PSUs, with up to three projects eligible for a lump-sum grant of ₹1,350 crore or 15% of capex, whichever is lower. In Category II, ₹3,850 crore was earmarked for both the private sector and PSUs, with a lump-sum grant of ₹1,000 crore or 15% of capex, whichever is lower, for each project. At least one project in Category II was planned to be bid out through a tariff-based bidding process, with criteria designed in consultation with NITI Aayog. In Category III, ₹600 crore was provisioned for demonstration projects and/or small-scale product-based gasification plants. This category offered a lump-sum grant of ₹100 crore or 15% of capex, whichever is lower, for entities with minimum capex of ₹100 crore, and a minimum production of 1,500 normal cubic metres per hour of syngas.

Why coal gasification is being framed as strategic

The government is positioning coal gasification as a strategic lever to convert domestic coal into fuels and chemicals. The stated policy rationale is to reduce import dependence and strengthen energy security. The commodities listed in the proposal include inputs that are significant for fertilisers and industrial chemicals, as well as gas and fuels. The broader mission target referenced in the coverage is 100 million tonnes of coal gasification by 2030. Separately, reporting also notes the Coal Gasification Mission launched in 2020 with the same 2030 target. The current proposal fits into that longer policy arc of creating domestic capacity and downstream value chains.

What this could mean for companies and projects

A larger, unified incentive pool could influence how quickly surface coal and lignite gasification projects progress from planning to execution. Source-based reporting has said the viability gap funding could benefit major PSUs and private players, including Coal India, BHEL, GAIL, NTPC and NLC. Any such benefit would depend on final scheme guidelines and approvals, which were not detailed in the available information. The higher per-project cap of ₹3,000 crore signals a willingness to support larger project economics, particularly where capex intensity is high. Under the previous framework, incentive ceilings were lower and category-driven.

Market impact and import substitution lens

The government’s stated import-substitution targets cover LNG, urea, ammonium nitrate, ammonia, coking coal via DRI, methanol and DME. The policy direction indicates a push to reduce reliance on imported feedstocks and intermediates by using domestic coal and lignite. In the run-up to Budget 2026, another source-based report said the proposed package could help reduce annual imports by up to $15 billion, subject to Cabinet approval. The same report framed the proposal as nearly quadrupling the earlier ₹8,500 crore corpus announced in 2024. While the import impact figure is not an official outcome, it highlights how the scheme is being presented in policy discussions.

Key numbers at a glance

Why the decision matters, and what to watch next

The proposed ₹37,500 crore outlay would represent a significant increase in direct financial support for coal gasification compared with the 2024 programme. It also simplifies the structure into a single unified scheme, while lifting the maximum support per project. The policy intent is closely tied to energy security and domestic production of fuels and chemicals, with a clear 2030 capacity target. The next key step is Cabinet consideration and formal approval, after which operational guidelines would determine eligibility, selection mechanisms, and disbursement conditions. Until then, the proposal remains subject to government clearance and final design.