Despite having the world’s fifth largest coal reserves, India is grappling with a widening demand-supply mismatch, slowing of exploration due to delay in forest clearances and rising imports. In recent years, coal along with oil and gold were the major factors that were widening current account deficit and weakening the rupee. According to the latest International Energy Outlook report of US-based EIA, demand for coal in India is set to double by 2040 while production may stagnate resulting in more than doubling of imports to 281 million tonne by 2040. After oil, can India afford to increase its reliance on imported coal? Perhaps not. Which is why drastic reforms are needed for the sector and at Coal India Limited (CIL) in particular.
CIL, which produces 80% of the country’s coal, is mired with its internal problems -- growth in output is slowing due to lack of technology for drilling deeper at its mines, transport and labour costs are rising. While plans are afoot to restructure the PSU, the labour unions have already started protesting any move to restructure CIL. Several private companies are under CBI scanner after the CAG alleged a scam over the allocation of captive coal mines. Uncertainty in the domestic arena has prompted private power producers to acquire coal mines abroad but some of them have faced problems in sourcing coal at a cheaper rate after hikes in royalty rates in countries such as Indonesia. Unless hard reforms are undertaken, India cannot raise its domestic coal output. While the proposal of public private partnership is a good idea to address the issue, it may not entice foreign miners. The government may have to look beyond PPP model and auction new mines to foreign firms just as it did for oil blocks and telecom spectrum. This will not just raise output and lower imports but also fill the government coffers.