It is most unfortunate that the issue of coal allocation has got so politicised now that the scope for rational discourse is becoming more limited than ever. Tragically, the brinkmanship between the Congress and BJP over Coalgate comes at a time when international ratings agencies have already put India under watch for a likely credit downgrade. The bitter politics developing around coal allocation and its consequences could well prove to be the tipping point for global credit ratings agencies which are now also focusing more on how a dysfunctional Parliament is preventing structural reforms under UPA-II. The coal allocation episode cannot be seen in isolation as it has a symbiotic link with the larger economy. The BJP is demanding the cancellation of all coal blocks irrespective of whether there was illegality committed in procedures adopted for allocating coal. This is a dangerous path because a sizeable number of the coal blocks allocated with due procedures are linked to upcoming power projects, which are critical for the economy. En masse cancellation of coal blocks would lead to a big scare among investors, both global and local, and would create fresh stress in the banking system which has about R3 lakh crore loans outstanding to the power sector. The bulk of these power projects are coal-based. Therefore, any large-scale cancellation of coal allocation will lead to nothing less than economic chaos and a sure downgrade by ratings agencies, causing a crisis of unforeseen dimensions.
Of course, the tendency among the opposition parties is to see this grave situation as an opportunity to further put the ruling party on the mat. So far, the BJP hasn?t got much support for its demand for en masse cancellation of coal allocation from the non-UPA regional parties. Industry too has supported the case for a more rational approach where only illegal allocations, which the CBI is already investigating, are cancelled. The UPA has also stuck to its position that large-scale cancellation could lead to economic chaos. It is still not too late for Prime Minister Manmohan Singh to tighten certain regulatory and legal provisions to ensure that the coal blocks allocated for power projects actually benefit the consumers. The power tariff to the end consumer must be capped at a reasonable level. There are allegations that some power producers have made bumper profits, as much as 60% of their total revenues, partly because coal was given so cheap and they sold power at higher rates (R4-5 per unit) in the open market. This needs to be regulated. The Prime Minister?s idea that 26% of profits from coal mining be mandatorily ploughed back for local area development could be implemented forthwith. Some of these decisions can then be communicated to the people while taking stern action against illegalities committed in the allocation of coal blocks. This would be the most rational approach, under the circumstances.
