Policy Update
Gowri Kodali
Introduction
India faces a critical trilemma in its energy transition: balancing rapid decarbonization targets with soaring industrial power demand, grid reliability constraints, and a heavy economic reliance on conventional fossil fuels. While expanding renewables and reducing emissions are priorities, coal remains essential for industrial and energy needs. The key issue is how to use domestic coal resources more efficiently and strategically.
The Coal Gasification Financial Incentive Scheme (CGFIS), approved by the Union Cabinet on 24 January 2024, addresses this challenge by offering ₹8,500 crore in financial support for coal and lignite gasification projects (Press Information Bureau [PIB], 2024a). Coal gasification produces synthesis gas (syngas), which is used to manufacture methanol, ammonia, synthetic natural gas, fertilizers, and other industrial chemicals.
This initiative marks a significant shift in India’s energy and industrial policies. Rather than using coal solely for electricity, the policy aims to convert it into feedstock for higher-value industrial products. CGFIS seeks to enhance energy security, reduce import dependence, promote domestic manufacturing, and support India’s long-term goal of self-reliance.
Background
India holds the world’s fifth-largest coal reserves and ranks as the second-largest producer of coal globally (Ministry of Coal, 2024; PIB, 2026). Despite this, the country relies heavily on imports of natural gas, methanol, ammonia, and other chemical feedstocks for fertilizer production and industrial manufacturing. Under the National Coal Gasification Mission, India has set a target of gasifying 100 million tonnes (MT) of coal by 2030 (Ministry of Coal, 2021). Coal gasification is a strategic approach to convert domestic coal into valuable industrial inputs, reducing dependence on imports.
Given the high capital costs and technological risks, the Union Cabinet approved CGFIS with ₹8,500 crore in funding. The scheme aims to encourage public and private sector participation, support indigenous technologies, and establish commercial-scale gasification projects nationwide.
The scheme integrates industrial policy, energy security, and technology promotion, making it a significant intervention in India’s coal sector.
Functioning
The Coal Gasification Financial Incentive Scheme consists of three categories.
| Category | Eligible Projects | Total Allocation | Maximum Financial Assistance | Key Feature |
| Category I: Government PSU Projects | Government Public Sector Undertakings | ₹4,050 crore | Up to ₹1,350 crore or 15% of capital expenditure, whichever is less | Supports large-scale gasification projects by Government PSUs |
| Category II: Private Sector and Government PSU Projects | Private-sector companies and Government PSUs | ₹3,850 crore | Up to ₹1,000 crore or 15% of capital expenditure, whichever is less | Competitive and transparent bidding; at least one project through tariff-based bidding |
| Category III: Demonstration and Indigenous Technology Projects | Indigenous technology demonstration projects and/or small-scale product-based gasification plants | ₹600 crore | Up to ₹100 crore or 15% of capital expenditure, whichever is less | Minimum ₹100 crore capital expenditure and minimum syngas production of 1,500 Nm³/hr |
The scheme provides for the grant to be paid to selected entities in two equal installments.
Source: Guidelines for Scheme for Promotion of Coal/Lignite Gasification Projects of Government PSUs and Private Sector, Ministry of Coal, Government of India (February 2024)
Performance
Since its approval in January 2024, the scheme has moved from policy announcement to implementation. In December 2024, successful applicants under Categories I and III were announced. The selected entities included:
– Bharat Coal Gasification and Chemicals Limited (BCGCL)
– Coal India Limited for the CIL-GAIL Consortium
– Coal India Limited
– New Era Cleantech Solution Private Limited
Award letters were subsequently issued to selected projects under Categories I and III. The Lakhanpur Coal Gasification Project in Odisha is a major initiative that has received ₹1,350 crore in financial support under Category I. In February 2025, three applicants were also selected under Category II: Jindal Steel and Power Limited, New Era Cleantech Solution Private Limited, and Greta Energy Limited. By July 2025, a total of seven projects had been approved under the ₹8,500 crore scheme: three under Category I, three under Category II, and one under Category III. “Coal India Limited had also established joint ventures with BHEL and GAIL to develop commercial-scale coal gasification facilities (Press Information Bureau [PIB], 2024b, 2025).”By the end of 2025, ₹6,133.06 crore had been officially committed to the seven approved projects across Categories I, II, and III, while the remaining unallocated balance of ₹2,366.94 crore was earmarked for a second bidding round. The projects were under implementation, with commissioning targeted by FY2030 (Ministry of Coal, 2026; PIB, 2026). Given the long timelines for gasification projects, it is too early to evaluate the scheme based solely on production outcomes.
Future performance should therefore be assessed through indicators such as:
– Private investment mobilised
– Production capacity created
– Domestic technology development
– Import substitution achieved
– Water and environmental performance
– Employment generation and industrial linkages
Impact
The significance of CGFIS extends beyond the coal industry.
Traditionally, energy security focused on fuel availability. Modern industrial economies also require reliable access to chemical feedstocks such as methanol and ammonia. Coal gasification allows India to convert its substantial coal reserves into these strategic industrial inputs.
This can generate multiple benefits:
India imports significant quantities of methanol, natural gas, and other chemical feedstocks. Domestic gasification could reduce this reliance and improve supply security.
Supporting Industrial Growth
Gasification-derived products can support sectors such as:
– Fertilisers
– Petrochemicals
– Pharmaceuticals
– Steel
– Transport fuels
– Chemical manufacturing
The scheme supports the broader goal of Atmanirbhar Bharat by fostering domestic production of critical industrial inputs.
Encouraging Technological Development
Commitment to indigenous technologies can strengthen India’s engineering and innovation ecosystem, especially in advanced coal conversion.
The scheme’s significance therefore lies not merely in increasing coal-based output, but in transforming coal into a strategic industrial resource that supports manufacturing growth and economic resilience.
International Experience: Lessons for India
China is the most notable example of large-scale coal gasification. Over the past two decades, China has made substantial investments in coal-to-chemicals and coal-to-liquids technologies to reduce its reliance on imported hydrocarbons and promote industrial growth. “China’s experience demonstrates that large-scale industrial value chains can be developed through coal gasification while improving resource security (International Energy Agency [IEA], 2024; Urgewald, 2025).”
However, it also highlights important challenges:
– High carbon emissions
– Significant water consumption
– Environmental management concerns
– Dependence on continuous technological upgrades
The main lesson for India is to adapt China’s model carefully, rather than replicate it entirely. While gasification can enhance self-reliance and industrial competitiveness, its expansion must be accompanied by advancements in technological efficiency and robust environmental safeguards.
Emerging Issues
Economic Viability
Coal gasification projects require significant initial investment. Long-term commercial success depends on market prices, technology performance, and operational efficiency.
High Ash Content
Indian coal typically has higher ash content than coal used in many international gasification projects, leading to technical challenges and potentially higher operating costs.
Water Use
The process requires substantial water input. In many coal-bearing regions, water scarcity is a concern, making sustainable water management essential.
Carbon Intensity
Although gasification produces industrial feedstocks, it remains a coal-based technology. Without effective carbon management, large-scale expansion could increase industrial emissions.
Technology Risk
India’s experience with commercial coal gasification remains very limited.
Scaling up projects without sufficient operational experience could be risky.
Fiscal Cost
The allocation of ₹8,500 crore under CGFIS represents a substantial public investment.
Policymakers must regularly assess whether CGFIS benefits justify fiscal support, especially compared to investments in green hydrogen, renewable energy, or other clean technologies.
Way Forward
First, future incentive payments should be linked to measurable results such as production efficiency, emissions performance, water-use efficiency, and domestic value addition.
Second, all major gasification projects should make environmental indicators such as water consumption, recycling rates, and carbon intensity publicly available.
Third, the government should establish a transparent system to measure the extent of import substitution achieved by gasification projects.
Fourth, new gasification infrastructure should be designed to remain compatible with future technologies such as carbon capture, utilisation and storage (CCUS) and the production of low-carbon hydrogen.
Fifth, indigenous technologies supported under Category III should have structured pathways to commercial scale, enabling India to develop its own intellectual property and engineering expertise.
Independent evaluations should be conducted periodically to determine whether the scheme delivers long-term strategic value or simply increases coal consumption.
Public support should enable the commercial viability of emerging technologies, rather than create ongoing dependence on subsidies.
Conclusion
The Coal Gasification Financial Incentive Scheme aims to transform India’s coal sector from a conventional fuel provider to a source of strategically important industrial resources. With an incentive outlay of ₹8,500 crore, the scheme seeks to promote technological innovation, reduce dependence on imports, strengthen manufacturing capabilities, and enhance national self-reliance.
Its ultimate success will not be measured by the number of projects approved or coal gasified, but by the ability to deliver competitive industrial products, build domestic technological capabilities, reduce strategic vulnerabilities, and operate within acceptable environmental limits.
CGFIS is not merely a coal policy; it is a test of India’s ability to leverage its resource strengths to drive industrial transformation while addressing broader challenges in economic development and sustainability.
References
- Ministry of Coal. (2024). Scheme for promotion of coal/lignite gasification projects of government PSUs and private sector. Government of India.
https://coal.gov.in - Prime Minister’s Office. (2024, January 24). Cabinet approves the scheme for promotion of coal/lignite gasification projects of government PSUs and private sector towards incentive for coal gasification projects under three categories. Government of India. https://www.pmindia.gov.in/en/news_updates/cabinet-approves-the-scheme-for-promotion-of-coal-lignite-gasification-projects-of-government-psus-and-private-sector-towards-incentive-for-coal-gasification-projects-under-three-categories/
- Press Information Bureau. (2024). Selected applicants under financial incentive scheme for coal gasification. Ministry of Coal, Government of India.
https://pib.gov.in - Press Information Bureau. (2024, December 12). Letters of award issued under coal gasification financial incentive scheme. Ministry of Coal, Government of India.
https://pib.gov.in - Press Information Bureau. (2025). Coal gasification initiative and progress updates. Ministry of Coal, Government of India.
https://pib.gov.in - NITI Aayog. (2023). Roadmap for coal gasification and related technologies. Government of India.https://www.niti.gov.in/
About the Author
Gowri Kodali is pursuing a Master’s in Economics and currently serves as a Research and Editorial Intern at the Impact and Policy Research Institute (IMPRI). She is also actively preparing for the UPSC Civil Services Examination, with a keen interest in public policy, governance, economic development, and energy transitions.
Acknowledgement
I sincerely thank the IMPRI team for providing the opportunity to research and write this Policy Update. I am grateful for the guidance and feedback that helped strengthen the analysis and presentation of this article.
Reviewed by: Gayathry Sanjay & Sandra Menon
Disclaimer
All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.
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