By Saurav Anand
The Union Budget is set to signal a major pivot in India’s coal policy, with the government preparing to anchor a nearly ₹50,000-crore incentive push for coal gasification — one of the largest clean-coal interventions under consideration — as it looks to cut import dependence, revive stranded gas-based power capacity and rebalance the country’s energy mix, a senior coal ministry official said on condition of anonymity.
The proposed framework is expected to rely on large-scale Viability Gap Funding (VGF) to crowd in public and private investment into coal-to-gas, ammonia and methanol projects. Officials said the Budget articulation will be closely tracked by energy PSUs, private developers and lenders as a reference point for capital allocation in clean-coal technologies.
Coal gasification converts coal into synthetic gas that can be used for power generation or as feedstock for fertilisers and chemicals. Policymakers increasingly see it as a transition lever — less emissions-intensive than direct coal combustion and capable of providing firm energy support as renewable capacity expands.
Import dependence, stranded assets drive urgency
A key driver behind the proposed Budget push is India’s exposure to volatile global gas and fertiliser markets. The country currently has close to 20,000 MW of gas-based power capacity operating at low utilisation due to high LNG prices.
Under the emerging framework, new coal gasification units are expected to be located near existing gas-based plants, allowing domestically produced syngas to substitute imported LNG. Officials said this could improve plant load factors while creating demand certainty for gasification projects.
Gasification also offers a pathway to monetise domestic coal without adding conventional coal-fired generation capacity, aligning with the government’s broader effort to reduce emissions intensity while safeguarding energy security.
From pilots to scale
The proposed ₹50,000-crore push represents a sharp escalation from the ₹8,500-crore coal gasification incentive scheme approved in 2024, which focused largely on pilot and demonstration projects.
“The Government has set a target of achieving 100 million tonnes per annum of coal gasification by 2030,” said Rajib Maitra, Partner, Deloitte India. “The earlier scheme could support only about 10% of this target. A significantly larger incentive package is now being proposed to scale capacity to around 60–70% of the overall target.”
Officials said the expanded framework is aimed at commercial deployment, with enhanced VGF expected to lower equity requirements, improve internal rates of return and address financing constraints that have limited large-scale projects so far.
Underground coal gasification is also being examined to bring deep or non-mineable coal reserves into productive use.
PSUs to anchor, private capital to follow
State-owned firms such as Coal India, NTPC, BHEL, GAIL, NLC India and Steel Authority of India (SAIL) are expected to anchor the initial phase, leveraging balance sheets, technical capability and existing infrastructure.
NTPC has already initiated plans for a coal-to-synthetic natural gas facility and is in the process of appointing technical consultants to develop the project blueprint. Officials said similar projects could emerge across fertiliser- and steel-linked clusters.
Private participation is also expected to expand. Under the earlier incentive framework, private developers secured nearly ₹2,000 crore through competitive categories.
“The expanded package may extend the VGF mechanism further for private companies, significantly lowering their equity burden,” Maitra said. “This improves project bankability and enables lenders to engage more comfortably.”
On fund allocation he said, “It is expected that this time also funds will be allocated through an transparent allocation process like earlier scheme.”
Technology choices shaped by Indian coal
Coal quality remains a structural constraint. Indian coal typically has ash content of 30–45%, compared with 10–20% globally, leading to lower syngas yield and higher costs.
To address this, policymakers are aligning incentives towards gasification technologies suited to Indian coal, with fluidised bed gasification emerging as a preferred option. Strong downstream integration with fertilisers, chemicals, hydrogen and steel is being prioritised to ensure assured offtake.
Locating plants near gas-based power stations is also expected to strengthen demand visibility.
Budget signal on coal’s next role
By signalling a large-scale coal gasification push in the Budget, the government is expected to underline a strategic shift from incremental coal combustion to value-added conversion linked to gas, fertilisers and industrial growth.
For markets, the Budget signal could shape investment flows into clean-coal technologies. For policymakers, it marks an attempt to reposition coal as a transition asset rather than a constraint in India’s energy transformation.