According to a report by the Observer Research Foundation, coal gasification can significantly improve the nation's raw material security by lowering reliance on imported coal and natural gas, even though its decarbonisation results are dubious.The process of partially oxidising coal at high temperatures and pressures to create synthetic gas (syngas), which mostly consists of hydrogen, carbon dioxide, and carbon monoxide, is known as coal gasification. According to the report, India's steel industry is still the fastest-growing in the world, with demand expected to increase by 7.4% in 2026 and 9.2% in 2027.

Approximately 45% of domestic steel production was produced using the Blast Furnace-Basic Oxygen Furnace (BF-BOF) technology, and this percentage continued to rise as the majority of new capacity additions used this method.In the BF-BOF process, coking coal was an essential component that carbonised into coke, which served as the furnace's main fuel, chemical reducing agent, and structural support. According to the research, "nearly 90% of India's coking coal requirements came from imports from Australia, which exposed steelmakers to price volatility and supply disruptions."

When Australian premium hard coking coal prices reached a 17-month high in January 2026 as a result of torrential rains and flooding in Queensland, the local market was severely vulnerable. Due to the unrest in West Asia, the price of coking coal increased globally once again in March 2026.
Import dependence increased as a result of the growing demand and ongoing reliance on the BF-BOF route. In response, the government launched Mission Coking Coal, which aims to raise local raw coking coal production to 140 million tonnes by 2030 while requiring a 10–12% blend of imported and domestic coking coal.

"Coal gasification offered a potential way to reduce these dependencies by enabling the use of domestic coal to produce syngas, which could partially substitute coking coal as a reducing agent and directly substitute LNG in gas-DRI operations," the paper stated.
Cleaner fuels, fertilisers, and chemicals like urea, methanol, and ammonia are then made from syngas.Given that India is the third-largest importer of liquefied natural gas (LNG) in the world, with imports making up 50.1% of the total supply, natural gas also posed a risk to the security of raw materials. Many domestic steelmakers relied on gas-based processes, even though coal still accounted for approximately 80% of direct reduced iron (DRI) output.

According to the research, domestic steelmakers were obliged to cut production and restrict their current supplies due to interruptions in the global petrol markets caused by the war. A number of coal gasification projects, such as those by Greta Energy and Metal Private Ltd. in Maharashtra and a joint venture between Coal India Ltd. and the Steel Authority of India in West Bengal, entered the pipeline to address this.The syngas-based DRI route's emission intensity varied from 2.50 to 2.90 tCO2/tcs, which was higher than the traditional BF-BOF route's 2.20 to 2.60 tCO2/tcs, according to India's Steel Decarbonisation Roadmap. India's steel industry continued to emit 2.55 tonnes of CO2 per tonne of crude steel, which is still almost 30% more than the global average.

Coal gasification was one of the most carbon-intensive methods for producing steel, which clearly conflicted with the country's decarbonisation objectives even if it provided a way to utilise 400 billion tonnes of indigenous coal reserves.
In order to promote the technology, which still had the potential to produce ₹60,000–90,000 crore per year through import substitution, the Ministry of Coal incorporated gasification terms into production agreements signed with winning bidders in April 2026.
In order to encourage public and private sector initiatives, the government launched an incentive scheme worth ₹8,500 crore in 2024. In May 2026, a second scheme worth ₹37,500 crore was approved, providing financial support up to ₹5,000 crore each gasification project.