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Just Talk or Will There be a Serious Action for Coal Privatisation This Time?

Posted on: 03-Oct-19
Image source: Pixabay

Introduction

Coal privatisation has been discussed by the Indian government multiple times in the past. However, there has been a lack of actual action with regards to it. For instance, during the 1990s, this did not materialise due to protests by the workers. Similarly, during 2009-2010, the Indian government failed again due to worker protests and the unearthing of the massive 27 Bn$ coal scam in 2011. This led to the cancellation of the licenses allotted[1] by the hon’ble Supreme Court of India.

During September 2019, a top-level committee which included the cabinet secretary, Department of Economic Affairs secretary, revenue secretary, coal secretary, and Niti Aayog vice-chairman, has recommended that the Indian government should make major changes to the coal industry. Will these recommendations prove to be another false dawn for the Indian coal industry? Or will there be any serious action in terms of privatisation? This article aims to explore the answers [2].

The Committee’s Recommendations

Coal India Ltd. is targeting annual production of 1 Bn MT within the next five years. The latest recommendations of the committee are that there should be no allocation of captive coal mines. Instead, a new one-year plan has been formulated in order to shift all the existing concessions to commercial mining. Furthermore, it has been recommended that all the new auctions should be done for commercial purposes only. The committee has stated that there should be no direct allocation to PSUs. However, such recommendations have been made in the past as well. The question remains, whether the government is serious about privatisation this time. There are two major reasons why the government may have to go ahead and implement the plan this time [3] [4]

Coal Import Figures

Firstly, high dependency on coal imports. The Indian economy is highly dependent on coal imports from countries like Indonesia and Australia. Between January and August 2019, India’s total coke and coal imports stood at 175.5 MMT, a 9% increase over the same period in 2018. Additionally, Coal India Limited (CIL)’s production during the month of August 2019 was 34.77 MMT, a 10.3% decrease compared to 38.78 MMT during August 2018. Lower production by CIL can lead to additional import pressures on the Indian economy [5] [6]

Economic Slowdown

Secondly, the overall state of the Indian economy is such that foreign investments are desperately needed. In the last quarter, India’s GDP growth fell to merely 5%. Modi government is going all out to ensure that foreign investments can be improved. In order to attract foreign investments to the Indian coal industry, the government announced that the coal sector would be open to 100% FDI. According to Commerce and Railways Minister Piyush Goyal, “There is a little slowing down of FDI worldwide, so we have taken some significant decisions; 100% FDI for coal mining and all related processing activities will be allowed under the automatic route”. In addition, India is also looking to reduce its current account deficit. At present, coal imports are a major drain on the economy in terms of foreign exchange. Reduction in these coal imports could act as a boost to the economy [7] [8].

This could prove to be a major gamechanger for the sector, as well as for the overall Indian economy. The dependency on CIL and imports could also be reduced to a great extent. Although employee unions have already indicated that they will hold a strike against this move, it is unlikely that the move will be reversed. This appears to be a good sign for the Indian coal sector, as foreign players will translate into  increased competition [9].

Worker Protests

The Modi government appears to be extremely serious about the privatisation of coal this time. Several reforms have already been implemented in sectors like Banking, Insurance, and Retail. Now, the agenda seems to have shifted towards coal. However, the move may also face a major hurdle in terms of the expected protests by workers. There are around 5.5 lakh workers in the industry at present. The trade unions have already indicated that they will hold protests against the privatisation of the sector. The government will have to provide them with assurances before the plan is given the go-ahead [9].

Conclusion

To sum up, it is evident that this time, Modi government is serious about coal sector reforms. If the sector is opened up to private sector players in the upcoming months, it is likely to improve the state of the industry. The level of competition will certainly improve, and the consumers are most likely to be the biggest beneficiaries. CIL’s monopoly might just be coming to an end, and the coal industry might just get the big push that it desperately needs!

 

Sources

[1] http://sanhati.com/excerpted/3798/

[2] https://economictimes.indiatimes.com/markets/stocks/news/govt-committee-recommends-privatisation-         of-coal-sector/articleshow/71111721.cms

[3] https://www.mining-technology.com/news/india-invite-bids-coal-mining-blocks/

[4] https://www.livemint.com/market/mark-to-market/cil-s-relaxed-production-target-still-looks-stiff-                  1561396233123.html

[5] https://www.coalindia.in/DesktopModules/DocumentList/documents/image0120190901184034626.pdf

[6] IMAN Resources Report

[7] https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/coal-sector-gets-nod-for-          100-fdi/articleshow/70885133.cms

[8] https://www.financialexpress.com/economy/coal-blocks-government-to-invite-bids-from-global-                    miners/1710603/

[9] https://www.newsclick.in/Five-Lakh-Coal-Miners-Ready-Total-Strike-Sept%2024

Tags: Coal Privatisation, coal india

Source: CoalShastra
Edited By: CoalShastra
Author: Shrey Bhandari