Impact of Coal on Indian Conomy_Himanshu

7/31/2019 Impact of Coal on Indian Conomy_Himanshu

1/5

To meet the growing power demand of the developing country like India and looking at the position it

holds in Coal fields. Its highly conspicuous to say India has to tap its coal mines to balance its demand.

India is fourth largest coal reserve in world with reserve of 285,863 million tone. Projected demand for

the year 2011 was estimated to be 731 million tonne where as the expected supply was 680 million

tonne. It means country with fourth largest coal reserves has to import coal and which in turn will put

pressure on its foreign reserves. Consistently India has been importing coal recent figures are:

Year Import(million tone)

2007-08 49.80

2008-09 59.00

2009-10 67.75

2010-11 68.92

The impact which this is causing to the economic is multi dimensional. Here we will discuss the causes of

inefficiencies and their impact on the economy.

Low drilling capacity

Current drilling capacity is 3.44 lakh meter it should be increased to 15 lakh meter as recommended by

expert committee under Shri. T L Shankar.

Infrastructural Issues

The low production is due to inadequate backlog in overburden removal, mismatch between excavation

and transportation, low availability and underutilization of heavy earth moving machinery etc.

Improper and non transparent distribution

Though new distribution policy was adopted in 2007 for distribution of coal to small and medium

consumers .However, lack of proper monitoring results into no major improvement.

Presence of Coal Mafia in mining region

It is alleged that the coal industry's trade union leadership forms an axis with the mafia present there and

employs caste politics to maintain its power. Pilferage and sale of coal on the black market, inflated orfictitious supply expenses, falsified worker contracts and the expropriation and leasing-out of government

land have allegedly become routine under this mafia raj.

Inconsistency between guidelines suggested and execution

Guidelines clearly suggest keeping blocks offered to private players at reasonable distance from existing

blocks in order to avoid operational difficulties. But instances were found where this was not taken care.


2/5

Example Moher Amlohri extension from NCL and Sasan UMPP are sharing boundaries as a result of

which NCL is not able to access his 48 million tonne. This has also resulted in reduction in life of project.

Allotment of Coal fields

Allocation of coal blocks was done through minutes of meeting and there was is no document to

support the proper allocation of coal blocks.

In general, allocation should be don on the basis if competitive bidding process with transparent system

as discussed in meeting under chairmanship of Secretary Coal in June 2004. Still proper framework is

lacking which can provide transparent and more robust system to allocate coal fields. Since 2004 more

than 200 coal blocks have been allocated but still these allocation lack transparency and some of the

blocks are re-allocated due non transparent measures adopted.

CAG said private firms are likely to gain Rs 1.86 lakh crore from coal blocks that were allocated to them

on nomination basis instead of competitive bidding, which amounted to the loss to national exchequer.

Implication on Indian Economy

Direct Implications

Current Account Deficit

Increase in the import of coal is resulting into heavy import bill pressure on economy. When country is

struggling to keep its Current Account Deficit in control, this is one sector which can be tapped.

Transportation Prices

Message to International Business communities

Failure to meet the political commitments

Recommendations:

Increase the drilling capacity from current 3.44 lakh meter to 15 lakh meter.


3/5

As more Indians enjoy the trappings of middle-class life and the country industrialises,

demand for coal-fired electricity will continue to rise smartly, roughly in line with economic

growth.

Possessing coal and capital is no guarantee that India's energy boiler will work properly,

however. It also involves multiple states, government ministries, regulators, mandarins,

politicians, tycoons, environmentalists, villagers, activists, crooks and bandits. There are the

usual gripes of an emerging economy: blackouts (during peak hours the system delivers

10% less electricity than customers want) and an inadequate grid that does not reach some

300m people (although it has improved a lot in recent years).

That seems unlikely to changeIndia is too chaotic and free a place to manage the feats of

national machismo that allowed China to build the Three Gorges dam. Although new

projects are planned in places such as Kashmir and neighbouring Bhutan, harnessing

Himalayan rivers to power all of India is for now a dream, not a policy.

The growth of India's power industryassuming it is built and largely fired by fossil fuels

would contribute about a tenth of the total global rise in emissions over the period

After privatisation in 2010, a tenth of its shares are listed (the rest are owned by

the state) making it India's third-most-valuable firm, worth $44 billion. It makes a

huge return on equity of over 35%, has $11 billion of unused net cash and

reinvests only a fifth of its gross cashflow. It even has a financial gnat on its hide

in the form of TCI, a London-based activist hedge fund famed for its stagy

belligerence.

That would swell India's overall annual energy-import bill. Include coal used for purposes

other than power, liquefied natural gas and oil and it could rise by $65 billion or so by 2017,


4/5

compared with the year to March 2011, according to Sanjeev Prasad of Kotak, a broker.

That would put a huge strain on the balance of payments. Even if India can afford to import

all this coal, the next question is whether it can persuade its population to fork out for the

electricity it produces.

Companies which need reliable power supplies, including India's technology giants, will

carry on building their own generators just to be sure.

But if it is delivering the infrastructure that can allow the economy to grow at close to a

double-digit pace and industrialise rapidly, India is failing

Rephrase:

Up to $200 billion of capital investment is required upgrading the network and this much capital

will not be available with already cash strapped government. And also, as the cost of the power

rises because of the expense of imported coal, government is neither having economic strength

to subsidize it nor capable of easily passing it through by raising prices to customers. That means

it is their suppliers, the generating companies that get squashed.

Those states that can guarantee power supply, such as Gujarat, will attract the majority of

energy-intensive investment, such as car factories. This potentially holds a greater risk of

disturbing the balance in economic growth of the country.

Analysts reckons that by the year to March 2017 domestic coal production will meet only 73% of

demand, leaving a gap of some 230m tonnes, almost five times the level of 2012. Include other

industries that use coal, such as steel, and some analysts calculate that India's total imports by

2017 could reach some 300m tonnes. That is on a par with the current exports of Australia, or

those of Indonesia, South Africa and Canada combined. This never goes in favor of a healthy

economy to have such a huge, one sided dependency on its fuel related exports.

Coal mining inefficiency is paving way to reverse FDI which is going to againg negatively affect

the Balance of Payments. Private generating have assumed that the state will not deliver


5/5

enough coal supplies they need and are prepared to import vast amounts of coal to fire their

plants, either by acquiring it from wholesalers or by buying foreign coal mines. Some $7 billion

has been spent in the past six years on pits in Australia, Indonesia and Africa. To mention,

Gautam Adani, a Gujarat-based tycoon, is building a private network of mines abroad that feeds

ports and power stations in India.

Power is distributed to homes and firms by publicly owned grid companies that are often

bankrupt, their tariffs kept too low under political pressures. Trapped in the middle are the firms

that run power stations. Left without a choice, they are importing pricier foreign coal, but the

grid companies cannot afford the power it produces. With too little coal and complaining

customers, the private firms that have built new power stations are in financial trouble. This is

strongly going to discourage the further private investment in this field. This is again going to

put pressure on Government if these firms reach state of bankruptcy and ask for bail out in the

name of national interest.

CIL raising its coal prices to international rates, would affect electricity prices rise drastically and

affect everything from the steel industry, cement industry to pharmaceuticals etc directly. The

higher electricity prices would make ALL goods and service extremely costly in India and

essentially lead to massive price rises across the board.

Documents

Impact of Coal on Indian Conomy_Himanshu