Coal gasification explained: Inside India’s ₹37,000 crore bet on energy self-reliance

India has announced a ₹37,000 crore investment plan to fuel coal gasification projects, aiming to create a sustainable domestic energy source and reduce its high dependence on global supply chains.

Experts note that although the coal gasification ambitions of the country will not be able to fully replace fossil fuels or primary energy sources, the initiatives are likely to compress the import dependence of India while building energy security for the country.

India currently imports the majority of its energy requirements from foreign countries, which puts the supply chain at severe risk in cases of any potential disruptions, an example of which we have recently seen due to the West Asia crisis.

A search for alternative sources of energy begins right there, as the country seeks to create an alternative source to support energy needs.

What is coal gasification?

Coal gasification is a chemical process where the key energy source, solid coal, undergoes a process using high temperature, high pressure, water, and a controlled amount of oxygen to convert into synthesis gas, also known as syngas.

This syngas is a versatile chemical energy source, which, after cleaning of impurities, will be used in industrial processes like creating ammonia for fertilisers, to be converted and used as domestic cooking gas, to generate power, and produce clean hydrogen, among other things.

Traditionally, we have been burning coal to produce energy and power. But now, with the new thermo-chemical projects, like coal gasification, the energy source is expected to be utilised in a much cleaner format as it undergoes a chemical transformation rather than just being ignited.

India is looking at expanding several clean energy options, similar to coal gasification, in an effort to reduce the imports of an import-dependent country.

Is the ₹37,000 crore investment plan enough?

In May 2026, the Prime Minister Narendra Modi-led Union Cabinet approved a ₹37,000 crore outlay for coal/lignite gasification projects in India as the nation now focuses on creating alternative and diversified energy sources.

With this massive investment, the central government aims to gasify around 77 million tonnes of coal/lignite for the production of syngas and its downstream products.

“This ₹37,000 crore is not meant to cover the entire cost, but to act as a spark for private investment,” said Sonam Srivastava, Founder and Fund Manager, Wright Research.

The cabinet expects an investment mobilisation of ₹2.5 lakh crore to ₹3 lakh crore to diversify the use of coal and substitute the imports of LNG, urea, ammonia, ammonium nitrate, methanol, and coking coal.

If the government is able to achieve its target, then this move will mark a step towards creating alternative energy sources while not depending on global price volatility and geopolitical supply chains.

“The ₹37,000 crore outlay is best understood as catalyst capital under the viability gap framework, not the total quantum of investment required for India’s energy security ambitions,” said Harshal Dasani, the Business Head of INVasset PMS.

Dasani also explained that the current allocation is sufficient to seed the first wave of demonstration and early commercial projects, as the government is expected to scale up the projects with time, marking a “more sensible policy path.”

What are the key concerns related to coal gasification?

With bigger ambitions come greater risks. The same applies to India’s coal gasification targets, which face critical risks regarding their climate impact.

As coal gasification remains a thermo-chemical process of generating energy, it is highly water-intensive. The high ash content of Indian-grade coal further adds to the challenges associated with environmental clearances and carbon costs.

“The environmental concerns around coal gasification are real and warrant honest acknowledgement,” said Dasani. “This is an energy-security policy, not a climate-transition policy. The two goals are different, and gasification primarily serves the former.”

However, that being said, the coal gasification is the government’s policy to ensure energy security in the country, and with steps like carbon capture, utilisation, and storage, the process is likely to yield lower per unit of carbon output than conventional coal use.

“Compared to gas-based methods, making ammonia or methanol from coal leaves a bigger carbon footprint. So, projects in areas with less water will have to use closed-loop water systems, and it’s better to plan for carbon capture from the start instead of trying to add it later,” said Srivastava.

How will coal gasification impact the Indian economy?

India holds one of the largest coal reserves in the world, around 401 billion tonnes, and a lignite reserve of 47 billion tonnes. While the country needs coal for 55% of its energy needs, the gasification project aims to use a chunk of the reserves to produce fuel using the chemical process.

Experts said that the coal gasification project is estimated to reduce the country’s dependence on high-value imports like natural gas and LNG while also lowering the import reliance of the fertiliser feedstock supply chain.

“The current account benefit from substituting roughly 100 million tonnes of gasification-grade coal use into the value chain is meaningful, though not transformational at the aggregate GDP level,” said Dasani.

The coal gasification projects are estimated to generate ₹6,300 crore in revenues for the government while creating 50,000 direct and indirect jobs for the people across 25 projects in coal-bearing regions.

With an increased investment in gasification projects, the government seeks to reduce the load from imports of items like LNG, urea, ammonium nitrate, ammonia, coking coal, methanol, DME, among others, where India spent ₹2.77 lakh crore in the financial year ended 2024-25.

“What’s interesting is that this could really boost heavy engineering, chemicals, and industrial activity, especially in eastern India, where we haven’t seen much value addition from coal so far,” said Sonam Srivastava.

The market expert, Harshal Dasani, also said that the “economic logic” behind the goal gasification projects is sound, but the “execution timeline will determine the actual quantum.”

For stock market investors, companies which are linked to the coal mining ecosystem, supply chain, engineering, and equipment manufacturers will be in focus as they are likely to gain from the investments in these initiatives via order updates.

Key stocks to be in focus

*Year-to-date (YTD) returns, 1-year returns, and CMP based on NSE data.

Disclaimer: This article is purely for informational purposes and should not be considered investment advice from Upstox. Please consult with a financial advisor before making any investment decisions.