- Imported coal permitted as domestic linkage remains unguaranteed
- Flexibility aids projects but complicates import-substitution strategy
India has widened feedstock flexibility under its INR 37,500 crore coal gasification incentive scheme by allowing developers to use imported coal, easing one of the biggest constraints facing prospective projects. The clarification comes ahead of the 7 September bid deadline under the Scheme for Promotion of Surface Coal/Lignite Gasification Projects and is expected to improve project viability by giving developers greater flexibility over coal quality and availability.
The change, however, also reshapes the economics of India’s gasification strategy. The programme was designed to convert abundant domestic coal into higher-value fuels and chemicals, reducing imports of LNG, methanol, ammonia, urea and other industrial feedstocks. While imported coal broadens feedstock options, it also increases exposure to international coal prices, freight and currency movements, making project economics increasingly important.
Developers retain responsibility for coal supply
The clarification followed a query from prospective bidder Indo Rama on whether imported coal could be used under the scheme. The Ministry of Coal confirmed that imported coal remains permissible under India’s Open General Licence framework and that arranging coal or lignite will remain the responsibility of individual developers. Although the government will seek to provide suitable domestic coal through the linkage mechanism, it has not guaranteed domestic supplies.
That flexibility addresses a key requirement for coal gasification projects, which require consistent coal quality, quantity and delivered costs over operating lives extending several decades. Since gasifiers are designed around specific coal characteristics, developers can now use imported coal where domestic grades are unavailable or where alternative feedstocks better suit the selected technology.
Government expands support for gasification
The Cabinet approved the INR 37,500 crore scheme in May 2026, targeting around 75 million tonnes of coal and lignite gasification capacity as part of India’s broader ambition to gasify 100 million tonnes of coal by 2030.
The scheme provides financial assistance covering up to 20% of plant and machinery costs, capped at INR 5,000 crore for an individual project and INR 12,000 crore for a corporate group. Coal linkages for gasification projects have also been extended to 30 years.
The programme significantly expands the government’s earlier INR 8,500 crore incentive scheme, under which eight projects receiving more than INR 6,100 crore in support are already under implementation.
Project pipeline continues to expand
India’s coal gasification programme has begun moving beyond policy announcements towards project execution. As highlighted in BigMint’s earlier coverage, around 22.6 million tonnes per year of gasification capacity is already operational or under development. This includes around 8 million tonnes per year linked to Jindal Steel’s coal gasification operations, approximately 2.6 million tonnes per year at Talcher Fertilisers and around 12 million tonnes per year across eight projects supported under the earlier incentive programme.
Another major project is Bharat Coal Gasification & Chemicals Ltd’s INR 25,000 crore Lakhanpur project in Odisha. The Coal India-BHEL joint venture plans to use coal and washery rejects supplied by Mahanadi Coalfields to produce around 0.66 million tonnes per year of technical-grade ammonium nitrate, with commissioning targeted for 2029. The current pipeline, however, remains well below the national target of 100 million tonnes by 2030.
Feedstock flexibility broadens technology options
Allowing imported coal gives developers greater flexibility to match feedstock with gasifier technology.
Much of India’s coal contains relatively high ash, requiring gasification systems specifically designed for those characteristics. Imported coal allows developers to select feedstocks better suited to their technology, blend imported and domestic coal where required and maintain plant utilisation if suitable domestic coal becomes unavailable. The change could also broaden participation by international technology providers.
The commercial trade-off is equally clear. Projects relying on domestic pithead coal benefit from India’s large resource base, while imported coal exposes developers to international coal prices, ocean freight and currency movements alongside already high capital costs.
Import substitution depends on project economics
The policy does not fundamentally alter the economic rationale for coal gasification. India imported around INR 2.77 lakh crore of LNG, urea, ammonia, methanol and other fuels and chemicals in FY25. Converting lower-value coal into higher-value industrial products can still create value through domestic manufacturing, employment and downstream industrial development.
The economics, however, become more complex as imported coal accounts for a larger share of feedstock. Synthetic natural gas must compete with LNG, coal-derived methanol with imported methanol, and coal-based ammonia with international suppliers. Government incentives can reduce upfront capital costs, but long-term competitiveness will continue to depend on feedstock costs and product pricing.
Outlook
The decision removes one of the principal constraints facing coal gasification developers by allowing greater flexibility over feedstock selection and project design. It also strengthens the commercial viability of projects that may otherwise have struggled to secure coal of the required quality under domestic linkages alone.
The larger challenge remains unchanged. India’s existing gasification pipeline remains well short of its 100 million tonne ambition for 2030, while project developers must still demonstrate that coal can be converted into fuels, fertilisers and chemicals at costs that compete with imported alternatives. Feedstock flexibility improves the prospects for new investment, but the pace of project execution and long-term product economics will ultimately determine whether the programme achieves its strategic objectives.
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