India is making one of its biggest fossil fuel bets in years, but this time the government is not merely digging up more coal. It wants to turn coal into gas.
The Union Cabinet on Wednesday approved a ₹37,500 crore incentive scheme to accelerate coal and lignite gasification projects, marking a major industrial policy intervention aimed at cutting India’s dependence on imported liquefied natural gas (LNG), ammonia, methanol and urea.
The move comes at a delicate geopolitical moment. Global gas markets remain volatile because of continuing Middle East tensions, while India’s electricity demand has surged during recurring heatwaves. In April 2026, India recorded peak power demand of 256.1 GW, forcing policymakers to once again confront the country’s energy vulnerability.
Coal still supplies nearly 75% of India’s electricity generation. Yet instead of reducing coal dependence outright, New Delhi is attempting a strategic transition: using domestic coal reserves to produce synthetic gas and industrial feedstocks that India currently imports in large quantities.
Coal To Chemical Shift
Coal gasification is a process that converts coal into synthesis gas, or syngas, through controlled reactions with oxygen, steam and air. Syngas can then be used to manufacture chemicals, fertilizers, methanol, synthetic natural gas and even hydrogen-linked industrial products.
The government’s newly approved scheme targets gasification of around 75 million tonnes of coal and lignite while supporting India’s larger target of gasifying 100 million tonnes annually by 2030.
Under the scheme, the government will provide financial support covering up to 20% of plant and machinery costs for eligible projects. Incentives for a single project are capped at ₹5,000 crore, while a single corporate group can receive support up to ₹12,000 crore across projects.
The Centre expects the scheme to mobilise investments between ₹2.5 trillion and ₹3 trillion and create nearly 50,000 direct and indirect jobs across roughly 25 projects, especially in coal-bearing states.
This is not India’s first coal gasification attempt. In January 2024, the government had already approved an ₹8,500 crore coal gasification incentive package. But the latest programme is significantly larger and signals that coal conversion has moved from pilot-stage ambition to strategic industrial policy.
Import Dependence Concerns
The economic logic behind the scheme is straightforward.
India imports more than 50% of its LNG requirements, nearly 100% of its ammonia needs and around 80-90% of methanol consumption, according to the Press Information Bureau. Even urea imports remain substantial at roughly 20% of domestic demand.
That dependence exposes India to currency shocks and geopolitical supply disruptions.
The Russia-Ukraine conflict earlier disrupted fertilizer and gas supply chains globally. More recently, Middle East tensions have tightened LNG availability and pushed policymakers to rethink long-term import exposure. Reuters reported that India’s latest coal gasification push is directly linked to concerns around fuel security amid global instability.
India also wants to reduce thermal coal imports. Reuters reported in February that the government aims to cut power-sector coal imports by at least 30% this year, equivalent to roughly 15 million tonnes.
For policymakers, coal gasification offers a dual advantage. It utilises India’s abundant domestic coal reserves while creating substitutes for imported fuels and industrial raw materials.
Energy Security Versus Climate
The policy, however, exposes a deeper contradiction in India’s energy transition story.
India has aggressively expanded renewable energy capacity and remains committed to achieving net-zero emissions by 2070. Yet simultaneously, it continues to deepen investments in coal-linked infrastructure.
NITI Aayog has argued that coal gasification, especially when paired with carbon capture, utilisation and storage technologies, could allow “cleaner coal utilisation” during India’s transition phase.
Supporters argue that gasification is preferable to directly burning coal because it produces cleaner industrial feedstocks and can potentially reduce particulate pollution. It may also support hard-to-abate industries such as chemicals and fertilizers that cannot easily shift to renewable power immediately.
Critics, however, point out that coal gasification remains carbon-intensive unless combined with large-scale carbon capture systems, which are still expensive and commercially limited in India.
The economics also remain uncertain. Globally, several coal gasification projects have struggled with cost overruns and weak commercial viability when oil and gas prices soften.
That risk partly explains why the Indian government is now offering generous incentives and long-term coal linkage assurance. The Cabinet has extended coal linkage tenure up to 30 years under the Non-Regulated Sector linkage framework to improve investor confidence.
Private Investment Momentum
Despite the risks, industrial interest is clearly building.
State-run NTPC plans to produce 5-10 million tonnes of synthetic gas annually over the next three to four years, according to Reuters.
Coal India is also diversifying aggressively beyond traditional mining. Industry discussions indicate the company is planning nearly ₹1 trillion in capital expenditure over FY27-FY31, including investments in coal gasification, clean energy and thermal infrastructure.
Meanwhile, India’s coal bed methane and synthetic gas ecosystem is gradually expanding. Essar Oil & Gas Exploration & Production, for example, recently announced a $100 million investment programme for its Raniganj East CBM block in West Bengal, where it already produces around 1 million standard cubic metres of gas daily.
The government appears determined to create a full domestic coal-to-chemicals value chain rather than treating coal merely as a power-generation fuel.
The Logical Indian’s Perspective
India’s coal gasification push reflects a practical energy security strategy rather than a simple return to fossil fuels. Supporters see it as a way to reduce costly imports of LNG, methanol and fertilizers while creating industrial jobs. Critics worry about environmental impact and long-term carbon emissions.
For many Indians, the debate is less about choosing coal versus renewables and more about balancing economic growth, affordable energy and strategic self-reliance during a volatile global energy environment.
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