Opposition parties reacted with outrage in parliament on Thursday to the report, which was leaked to the Times of India. The assembly session was briefly adjourned and the government said it would respond once it had verified the facts.
"We are examining the news report and I have called for records. After that I will reply," Coal Minister Sriprakash Jaiswal told reporters. The government said the auditor had not yet presented it with the report.
Singh's government has lurched from crisis to crisis since massive graft in the sale of telecoms spectrum surfaced two years ago. Voters punished the ruling Congress party in regional elections last month and its coalition partners are increasingly rebellious.
The published excerpts of the coal report stop short of direct accusations of graft, but will further drive home the impression of a government in freefall.
The leaked draft from the Comptroller and Auditor General's (CAG) office criticises the allocation of 155 coalfields to about 100 private and some state-run firms, including a subsidiary of the world's largest steel maker ArcelorMittal , between 2004 and 2009 instead of auctioning them off to the highest bidder.
It said the policy undervalued the coal by at least 10.7 trillion rupees, or $210 billion at today's exchange rate.