BT Exclusive: Coal Ministry proposes massive ₹35,000 crore incentive booster for coal gasification

In a major move to transform India's energy landscape, sources tell Business Today that the Ministry of Coal is set to propose a staggering ₹35,000+ crore incentive package for coal gasification projects ahead of the upcoming Union Budget 2026. This proposal represents a significant fourfold jump from the existing ₹8,500 crore corpus. 

''The primary objective is to de-risk high-capital investments for both Public Sector Undertakings (PSUs) and private players, ensuring the commercial viability of clean coal technologies,'' a source familiar with the matter told Business Today.

The ambitious funding escalation is expected to potentially meet the National Coal Gasification Mission’s target of 100 million tonnes (MT) by 2030. By pivoting from traditional combustion to gasification, the government aims to create a robust domestic ecosystem for Ammonia, Methanol, and Urea slashing the nation's reliance on expensive imported natural gas and fertilizers.

The enhanced Viability Gap Funding (VGF) structure, as detailed by government sources, is expected to be a game-changer for several industry heavyweights including the like of Coal India Ltd, BHEL, NTPC, NLC India SAIL as well as private players among others.

• Coal India (CIL): The maharatna is already moving toward its goal of diversifying into coal-to-chemicals. Sources suggest increased funding will fast-track its joint ventures, including the ₹13,000 crore project with GAIL in West Bengal.
• BHEL: As a technology partner, BHEL is set to gain from the strategic necessity of developing indigenous gasifiers. Just this week, BHEL secured a major order from BCGCL (a CIL-BHEL JV) to deploy its proprietary Pressurised Fluidised Bed Gasification technology at a commercial scale.
• Fertilizer & Steel Majors: Companies like NTPC, NLC India, and SAIL are exploring syngas for direct reduced iron (DRI) and power generation, which would benefit significantly from the revised subsidies.

India currently imports approximately 83% of its oil and 90% of its methanol. According to government sources, this ₹35,000 crore booster could lead to an annual reduction of $15 billion (approx. ₹1.25 lakh crore) in the national import bill.

Beyond the balance sheet, gasification experts say will offers a cleaner alternative to traditional coal burning. It allows for the extraction of chemical value from coal while making it easier to implement carbon capture technologies, aligning with India's long-term net-zero commitments.

The proposed 2026 package is a significant evolution of the initial framework established in early 2024. While the first phase successfully kickstarted the mission, the capital-intensive nature of these plants often costing over ₹10,000 crore each necessitated a much larger booster to attract serious private participation.

The previous scheme divided the ₹8,500 crore into three categories: Category I for PSUs (₹4,050 Cr), Category II for mixed players (₹3,850 Cr), and Category III for small-scale demonstration plants (₹600 Cr). People familiar with the 2026 draft indicate that the new structure will likely expand these categories to prioritize high-value derivatives and incentivize the revival of stranded gas-based power plants.