Coal gasification: ₹37,500 cr scheme resets 2026 push

India’s Union Cabinet has approved a ₹37,500 crore incentive scheme for surface coal and lignite gasification, positioning it as the government’s biggest push yet to build a domestic coal-to-chemicals ecosystem. Officials said the scheme could mobilise ₹250,000-300,000 crore of investment and support gasification of around 75 million tonnes (MT) of coal and lignite.

The announcement comes after earlier policy attempts and project-level starts that have struggled to reach commercial scale. The scheme also arrives as carbon-related costs and trade measures begin to matter more, including India’s Carbon Credit Trading Scheme benchmarks starting this fiscal year and the EU’s CBAM being in force from January 2026.

What the Cabinet approved and why it matters

The approved outlay is ₹37,500 crore, targeted at new surface coal and lignite gasification projects producing syngas and downstream products such as ammonia, urea, methanol, and other petrochemicals. The government has linked the programme to energy security and reducing import dependence on LNG, urea, ammonia and methanol.

The scheme aims to gasify 75 MT annually and contributes to a broader national target of 100 MT of coal gasification by 2030. Officials also flagged expected economic outputs, including around ₹6,300 crore of annual revenue from the 75 MT gasification envisaged, with additional downstream revenues through GST and other levies.

Project selection will be conducted through transparent competitive bidding, based on benchmarking project cost, coal input, and syngas output. Incentives will be paid in four equal instalments linked to project milestones.

A third attempt after 2007 and 2024

The policy push is described as the third major attempt in about 18 years.

• In 2007, Jindal Steel and Power (JSPL) began building India’s first commercial coal-to-syngas plant at Angul, Odisha. It came online in 2014 and has been cited as operating below design capacity.
• In January 2024, the Cabinet cleared a ₹8,500 crore scheme. Eight projects worth ₹6,233 crore in grants are in different stages of construction. The BCGCL plant at Lakhanpur placed major equipment orders about four months ago, as referenced in the supplied material.
• In 2026, the Cabinet has now approved the ₹37,500 crore redesign with larger incentive caps and structures intended to draw bigger private capital.

How the 2026 scheme is structured

The financial incentive is up to 20% of plant and machinery cost, with multiple caps to limit concentration.

Key caps cited include:

• ₹5,000 crore cap per project
• ₹9,000 crore cap per product category (except synthetic natural gas and urea)
• ₹12,000 crore cap per entity or group across all projects

The scheme is also expected to support about 25 projects, with reporting indicating four projects already under development and an additional 25 expected to come through the scheme.

The import substitution claim and the ₹277,000 crore reference point

The policy pitch is import substitution. The substitutable import bill cited is ₹277,000 crore (FY25) across LNG, urea, ammonia and methanol.

The underlying mix matters because not every import category is directly displaced:

• Coking coal was put at ₹85,000 crore, with gasification linked only indirectly via the syngas-to-DRI route.
• LNG was put at ₹120,000 crore, but only some industrial usage is presented as substitutable.
• Methanol and ammonia were described as a cleaner substitution case, adding up to roughly ₹16,000 crore.

The supplied material also argues that even under optimistic assumptions of 100 MT gasification by 2035, annual import substitution could be ₹60,000-90,000 crore, implying partial coverage versus the cited substitutable bill.

Listed and operating ecosystem: who is already in the pipeline

Several listed entities are named as directly involved or positioned around coal and lignite gasification activity.

Coal India (CIL) is described as a joint-venture partner in three projects under implementation:

• With BHEL for coal-to-ammonium nitrate at Lakhanpur (Odisha)
• With GAIL for coal-to-synthetic natural gas at Sonapur Bazari (West Bengal)
• With SAIL for syngas-based steelmaking at Durgapur

The government has also extended coal linkage tenure to 30 years under the gasification sub-sector in the non-regulated sector auction framework, which is positioned as de-risking investments.

BHEL is cited as a primary domestic engineering and execution partner, including a ₹5,400 crore order from Bharat Coal Gasification and Chemicals Limited (BCGCL) in January 2026 for the Lakhanpur plant.

NLC India (NLCIL) is highlighted on lignite, with India’s lignite reserves cited at about 47 billion tonnes and NLCIL positioned for lignite-to-methanol and lignite-to-syngas projects.

Among private groups, Adani Group is cited as beginning work on a ₹70,000 crore plant in Nagpur producing syngas, ammonia and hydrogen.

Where the industrial opportunity sits: EPC, oxygen and plant systems

The equipment and services stack is described as substantial, with several components dominating plant capex. The supplied material flags the gasifier vessel, the air separation unit (ASU), and downstream synthesis as the three large blocks.

It also highlights that the wider supply chain includes pipework, refractories, water treatment, instrumentation, captive power, and civil works. Named beneficiaries across the value chain include Engineers India, VA Tech Wabag, Ratnamani Metals and Tubes, Anup Engineering, Linde India, Orient Refractories, and ISGEC Heavy Engineering, based on their stated positioning in project management, ZLD systems, piping metallurgy, process equipment, ASUs, refractory linings, and process equipment fabrication.

China’s buildout and what changes in a late entry

The comparison used is China’s coal-to-chemicals buildout between 2005 and 2020. The supplied facts include:

• China consumes about 380 MT of coal a year in coal-to-chemicals.
• About 70% of Chinese methanol output is coal-route.
• About 80% of Chinese ammonia is coal-route.
• The Shenhua Ningxia coal-to-liquids plant gasifies 44,000 tonnes of coal per day.

The narrative also notes China’s build started with the 11th Five-Year Plan (2006-2010), aided by energy security concerns after oil price spikes, cheap coal in western provinces, and capital backing by state-owned coal majors.

However, the supplied material states that after the 2014-2016 oil crash, economics worsened for many plants, and by 2017 China stopped approving new coal-to-liquids projects on emissions grounds. Aggregate Chinese coal-to-chemicals capex is cited as down roughly 60% from its 2014 peak.

Key constraints flagged for India: ash, water, clearances, carbon

The constraints cited include India’s high ash coal, with 30-45% ash content versus lower ash coal used in many global gasifiers. Water consumption is also flagged at 8-12 cubic metres per tonne of coal, and environmental approvals are described as binding constraints.

Carbon intensity is highlighted as a headwind: coal gasification without carbon capture is described as producing about 3.5 kg of CO₂ per kg of methanol versus 0.5 kg via the gas route, with similar logic applied to ammonia and urea. The supplied material also points to India’s Carbon Credit Trading Scheme Phase 1 benchmarks starting this fiscal year and possible carbon costs referenced in a wide range of ₹500-2,000 per tonne of CO₂ by the time plants commission in FY32-FY34.

Summary table: targets, incentives, and caps

Market impact: what the scheme changes for listed names

For upstream coal linkages and project participation, the extension of coal linkage tenure up to 30 years is presented as directly improving project risk profiles. That matters most for CIL-linked joint ventures already in implementation and for any new bids under competitive selection.

For engineering and execution, the ₹5,400 crore Lakhanpur order is a concrete data point on the size of single-project awards, and it puts BHEL into focus as a domestic execution partner named in the material. GAIL is positioned as a downstream beneficiary via synthetic natural gas projects.

On the private side, a ₹70,000 crore project referenced for Adani in Nagpur signals that the scheme’s design is intended to accommodate large projects. At the same time, the cap structure is meant to spread participation across multiple players, limiting how much subsidy can concentrate within one project, product, or group.

Conclusion

The ₹37,500 crore coal and lignite gasification scheme is a redesigned incentive push with clear caps, milestone-linked payouts, and competitive bidding to mobilise ₹250,000-300,000 crore of investment toward 75 MT of annual gasification capacity. The programme is framed around import substitution and energy security, while the supplied material also flags persistent constraints from high-ash coal, water needs, environmental clearances, and rising carbon accountability.

Next steps that will shape execution include the competitive bidding process and the pace at which projects move through milestone gates for incentive disbursement, along with how carbon benchmarks under India’s trading scheme start affecting coal-route economics over the commissioning window cited in FY32-FY34.