The government lifting restrictions that, among other factors, were hobbling commercial coal mining in the country is a huge leap forward. The Mineral Laws (Amendment) Ordinance opens up coal mining to non-coal companies and removes the end-use restrictions that applied before. Given how this should facilitate the auction of coal blocks for sale of coal in the open market and boost domestic production, it is likely to bring down India’s import dependence for coal—in FY18, India imported 235 million tonnes of coal at a cost of Rs 1.71 lakh crore; for perspective, that constitutes nearly 5% of the entire imports that year. Nearly half of this coal was for power plants and other coal-using industries.
While the state-owned Coal India Limited (CIL) is tasked with producing 1 billion tonnes of coal by 2023-24—and this deadline was posted after it became clear that it would not be able to meet the earlier deadline—there is little to suggest that it will achieve the target. The FY20 target for CIL was 660 million tonnes, and it is projected to fall significantly short of it. Meanwhile, though the coal auction policy was finalised in 2015, of the 204 blocks that were freed up for auction after Supreme Court cancelled their allocation in 2014, only 29 have been auctioned so far, thanks to the end-use restriction meaning the coal had to be used for the captive purpose only and couldn’t be traded in the market. Scrapping the condition that a company must have prior mining experience in India to bid for the blocks also means the pool of bidders has become much wider—in the new round, the government has proposed to put up 40 coal blocks for auction. The government had already allowed 100% FDI in commercial coal mining under the automatic route, the latest move will signal that it truly means business.
Given the ramifications for a number of coal-using industries—from power to iron&steel—the latest move of the government should provide a big boost to the economy if auctions go as planned. For that, the government must stare down the blackmail by the CIL worker-unions, who have been agitating against allowing commercial mining as that would end CIL monopoly. Improved energy efficiency and a cut in the costly imports will go a long way in reviving key sectors. Besides, if the auctions are successful, it will add new vigour to the demand for exploration—just 10% of India’s prospective geography, compared to Australia’s 95%, has been explored and mining happens in a much smaller 1.5%. NITI Aayog estimates that merely doubling of the current area being explored will add nearly 5 million jobs.
The government must also rethink the high royalties it charges coal mining if the latest move is to bear fruit. Ideally, given even non-oil mineral imports account for 30% of India’s total import bill—55% of oil is included—the government also needs to rethink levies on all minerals, and ensure environmental and other clearances are given on time; NITI Aayog has suggested a 180-day limit.