New Incentive Scheme to Boost Coal-to-Chemicals and Reduce Fuel Import Dependence

The Union Cabinet approved a ₹37,500 crore incentive package on May 13, 2026, to accelerate the implementation of coal gasification projects across India. The initiative is designed to enhance national energy security and reduce the country’s heavy reliance on imported fuels and industrial feedstocks by leveraging domestic coal and lignite reserves.

Union Minister Ashwini Vaishnaw briefed the media on the scheme during a press conference at the National Media Centre in New Delhi on May 13, 2026. The financial package focuses on promoting surface coal gasification, a process that converts coal into synthetic gas, known as syngas. This syngas serves as a critical building block for the production of various downstream chemicals and fuels.

Strategic Targets and Production Goals

Under the new scheme, the Indian government aims to gasify approximately 75 million tonnes of coal and lignite. This target is a significant component of a larger national objective to achieve a total coal gasification capacity of 100 million tonnes by 2030.

The production of syngas will enable the domestic manufacture of several critical industrial products. These include urea, methanol, ammonia, synthetic natural gas (SNG), and various other fertilizers. The government identified several areas of high import dependency that this scheme intends to address: ammonia production currently relies entirely on imports, while approximately 80% to 90% of methanol requirements are met through foreign sources. About one-fifth of the country’s urea requirement is currently imported.

Economic and Geopolitical Drivers

The push for coal gasification is driven by the high cost of importing substitutable chemical and fuel products. According to a government press announcement:

India’s import bill for key substitutable products LNG, urea, ammonium nitrate, ammonia, coking coal, methanol, DME and others stood at approximately ₹2.77 lakh crore in FY2025, a vulnerability further exposed by the ongoing geopolitical situation in West Asia.

The volatility of global supply chains, particularly due to tensions in West Asia, has highlighted the risks associated with dependence on imported liquefied natural gas (LNG), liquefied petroleum gas (LPG), and other hydrocarbons. By converting domestic coal into fuels and chemicals, the government aims to create a strategic buffer against external supply disruptions.

Financial Framework and Incentives

The ₹37,500 crore scheme introduces a unified financial structure to support project developers. Unlike previous iterations of gasification incentives, this new scheme does not utilize different categories for different types of entities. The maximum financial assistance available for a single project has been set at ₹3,000 crore.

Financial incentives will be provided based on the cost of the plant and machinery. The government will offer support of up to 20% of these costs, with the total incentive amount disbursed in four equal installments.

This represents a substantial increase in support compared to earlier incentive schemes. In previous frameworks, financial assistance was split into categories, with a maximum incentive of ₹1,000 crore per project for private sector entities and ₹1,350 crore per project for public sector undertakings (PSUs).

Industrial Impact

The transition to a unified scheme with higher caps is intended to attract larger-scale investments in surface coal and lignite gasification. By increasing the financial ceiling to ₹3,000 crore per project, the government seeks to accelerate the deployment of technology that can produce critical commodities such as ammonium nitrate and dimethyl ether (DME), as well as coking coal via direct reduced iron (DRI) processes.

This shift toward coal-to-chemicals capacity is positioned as a strategic lever to strengthen domestic industrial resilience and ensure that critical agricultural inputs, such as urea and other fertilizers, are less susceptible to international price shocks and logistics failures.