Coal Mining Gets a "Private" Push
Sutanu Guru analyzes the major policy change that allows all private sector investors to bid for and run coal mines in the country and how it will reduce dependence on costly imports.
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There have been so many announcements related to the Indian economy made in the aftermath of the Covid pandemic that even seasoned analysts and commentators have found it difficult to keep track and respond. One such significant move, announced a few days ago by finance minister Nirmala Sitharaman, seems to have escaped the attention of many in the deluge of information and controversies related to the economic stimulus package.
She announced a major policy change that would encourage private sector investments in coal and bauxite mining. Coal mining is even now allowed to private sector entities; but with a stipulation that only those companies which have coal based power generation plants can bid for and run private coal mines. This condition has now been removed and any investor-domestic and foreign- can now bid for and run coal mines.. This will formally end the monopoly of the public sector Coal India Ltd, which has produced most of the coal in the country ever since the then prime minister Indira Gandhi nationalized the coal sector in the 1970s. This will not only send a message to global investors that India further widening its open doors, but also have huge implications for the economy in the medium term
In fiscal 2019-20, India imported a massive 242 million tons of coal. The import bill was well in excess of Rs 100,000 crores, all of it paid in dollars. No doubt the economic disruption caused by the pandemic will lead to reduced imports this year. But the Indian economy will bounce back sooner or later and the massive coal imports would resume again. This is simply unacceptable for a country that has one of the largest reserves of coal in the world. Many analysts have rightly pointed out that the Make in India campaign would look silly if we cannot produce enough coal on our own despite having huge reserves.
The problem of coal imports became a serious issue in the second term of the UPA government. In 2010-11, India imported 68 million tons of coal. That jumped to 102 million tons in 2011-12. In between this, the UPA regime got embroiled in the coal gate scam that led to the Supreme Court cancelling all allocations of coal mines to private sector players. Any chance of increasing coal output domestically vanished after that as the public sector monopoly Coal India struggled in its operations. The crisis was amplified cruelly in June, 2012 when the entire power grid in north India collapsed as vast swathes of the country went dark. The crisis worsened as the UPA regime seemed paralyzed by the scams. In 2014-15, coal imports had zoomed ahead to 217 million tons.
The Narendra Modi government that took office in May, 2014 initially took a series of commendable steps to increase domestic output and reduce dependence on imports. They declined to 204 million tons in 2015-16 and further to 191 tons the next year. But the policy "tinkering" that the Modi regime did reached its limits soon and imports started rising again as power generation increased to fulfill Modi's promise of 100% electrification of India. By 2018-19, coal imports rose to 235 million tons and further to 242 million tons in 2019-20.
The Covid pandemic seems to have galvanized the Modi regime to announce long overdue and sweeping reforms in fields like labor law and agriculture. The new policy on coal mining by private players is no mere tinkering; it is a fundamental change. This will eventually lead to a significant reduction in our inexplicable and stupid dependence on imports. If coking coal (used by steel companies) mining is also privatized in a similar manner as hinted by some in the government, our dependence will go down even further. India currently imports about 50 million tons of coking coal every year.
Some will argue that encouraging coal mining at a time when the whole world, including India is investing heavily in renewable energy sources like wind and solar power looks shortsighted. Sure, renewable energy will play an increasingly larger role even in India in the future. But they day they replace conventional fossil fuels like coal and gas are still far away. As of now, total installed power generation capacity is 3,70,000 MW. Coal alone accounts for 200,000 MW while renewable energy accounts for 45,000 MW despite a massive push in the last six years.
The Modi regime seems intent on proving a point; that every crisis is also an opportunity.