Prime minister Manmohan Singh has approved formation of a ministerial panel, headed by finance minister Pranab Mukherjee, to sort out environmental issues hurting coal production.

This comes in the backdrop of ever widening demand-supply gap in coal which is likely to touch 142 Million tonnes next fiscal and classification of 203 coal blocks by environment ministry as "no-go" zones.

"Prime minister Manmohan Singh has given consent for the formation of a 12-member group of ministers (GoM), mainly to consider issues impacting coal production and development projects in the country," a top coal ministry official told PTI.

The panel has been asked to finalise its recommendations within two months.

The GoM includes coal minister Sriprakash Jaiswal, environment minister Jairam Ramesh, home minister P Chidambaram, steel minister Beni Prasad Verma, mines minister Dinsha Patel, power minister Sushilkumar Shinde and commerce minister Anand Sharma among others, the official said.

Other members of the GoM are agriculture minister Sharad Pawar, law minister Veerappa Moily, transport minister C P Joshi and deputy chairman planning commission Montek Singh Ahluwalia.

"The GoM will consider all issues relating to reconciliation of environmental concerns emanating from various developmental activities including those related to infrastructure and mining and finalise its recommendations within two months," the official said quoting notification.

It will finalise the recommendations which will include issues like -- efficacy and legality of forest clearance norms, damage to environment due to projects and afforestation steps.

It will also suggest whether changes are required in the existing laws and provisions.

Concerned over coal shortages faced by various sectors including the power, the PM has already asked the ministry of environment and forests to revisit the policy of no-go and go areas.

Earlier, the cabinet on January 13 had approved formation of a GoM to solve the vexed issue of mining in "no go" areas as classified by the environment ministry.

Coal and environment ministries had locked horns over the issue after the latter last year classified 203 coal blocks under 'no go' area prohibiting mining there, impacting 660 million tonne coal production per annum.

The coal shortage faced by the country this fiscal is 82 million tonnes (MT) and is likely to soar to 142 MT next fiscal.

Coal ministry had said various companies had already committed Rs 35,000 crore for end-use projects in lieu of coal blocks allotment.

It had also argued that this would augment about 1,30,000 MW potential power generation capacity per annum.