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Coal gasification ecosystem needs assured demand to attract investment

Weak response to the coal-gasification scheme highlights commercial viability concerns, underscoring the need for assured demand, easier financing, indigenous technology and better infrastructure

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Coal gasification requires substantial upfront investment, and the projects have long gestation periods and involve considerable technological complexity

Business Standard Editorial Comment

3 min read Last Updated : Nov 12 2026 | 10:27 PM IST

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The tepid response to the second round of the ₹37,500 crore coal-gasification scheme exposes the gap between policy ambition and commercial viability. The scheme envisages supporting 25 projects, but the second round attracted just two applications, both from state-owned NTPC. This compares poorly with seven applications in the first round from five companies, including Adani Enterprises, Talcher Fertilisers, Gallantt Ispat and Shyam Sel & Power. The response is a setback for the government’s ambition to gasify 75 million tonnes of coal by 2030 under the scheme, contributing to the broader national target of gasifying 100 million tonnes of coal. The strategic importance of the scheme is clear. With about 389 billion tonnes of coal reserves, among the world’s largest, India has a substantial domestic resource base that can be used beyond power generation. The push for gasification is important, given India’s ₹2.77 trillion import bill for liquefied natural gas (LNG), urea, ammonia and methanol in FY25. Coal gasification could help diversify feedstock sources for fertilisers and chemicals, reduce exposure to international price volatility, and strengthen industrial supply chains. The government expects the scheme to mobilise ₹2.5 trillion-3 trillion in investment and generate around 50,000 direct and indirect jobs.

Yet the limited response suggests that capital support alone may not be sufficient. Coal gasification requires substantial upfront investment, and the projects have long gestation periods and involve considerable technological complexity. Their economics are also sensitive to international prices. When imported natural gas and chemicals are cheaper, domestic syngas and its derivatives may struggle to compete mainly due to a lack of assured buyers. Uncertainty over long-term coal supplies, transportation infrastructure and the availability of specialised plant machinery further complicates investment decisions. There are also environmental considerations that cannot be overlooked. Gasification is not inherently a low-carbon alternative to conventional coal use. The process can generate substantial carbon emission and requires significant water, making it particularly challenging in coal-bearing regions facing water stress. Integrating with carbon capture, utilisation and storage (CCUS) will, therefore, be important in limiting its environmental footprint.

The immediate priority should be to improve the commercial viability of projects. Long-term purchase agreements for syngas and downstream products are critical. Public-sector companies in the fertiliser, energy and chemical industries could anchor demand through assured procurement arrangements. The government could also consider a partial credit-guarantee mechanism to share lending risks, lower borrowing costs, and improve access to finance. Including coal gasification in the harmonised list of infrastructure sub-sectors could further facilitate long-term financing. Equally important is developing indigenous technology. Collaboration among public-sector enterprises, research institutions and private companies should be encouraged to scale up domestic technologies.

The progress made by Bharat Heavy Electricals Ltd in developing gasification technology suited to India’s high-ash coal offers a foundation to build on. These could develop confidence in other domestic companies to apply for the third round, which the Centre has opened now. The government has extended coal-linkage tenure to 30 years for the syngas and gasification sub-sector, an important step towards providing supply certainty. However, this needs to be complemented by better logistics and demand visibility.

Topics : Coal Coal ministry Indian Economy infrastructure Business Standard Editorial Comment Editorial Comment