The government moves to boost FDI in coal mining

Coal

India is at the cusp of a strong growth in energy demand and is the 3rd largest energy consumer in the world in absolute terms but ranks 47th in the world in terms of per capita energy consumption. As our consumption levels are growing progressively and converging towards those of higher income countries, our dependency on fossil fuels and the role of coal in future energy demand becomes more prominent.

While India’s share in world’s fossil fuel reserves is low, it is well endowed with coal reserves and constitutes about 9.4% of the world’s reserves and about 9.3% share of the world’s production.

While hydro along with other renewables such as wind and solar have strongly risen in terms of their role in India’s energy consumption matrix, coal continues to dominate our energy demands accounting to almost 56% of our overall primary energy consumption.

Despite India’s large domestic resources, our import dependency has continued to rise from 12% in 2007 to 31% in 2017. This is largely due to a high growth in demand and poor quality of our domestic coal which, often does not meet the international quality standards.

Besides playing a crucial role in the energy sector, the coal mining sector has major economic significance for the country. It provides employment to over 355,000 people and is a major source of revenue and generates employment in resource-rich states like Jharkhand, Chhattisgarh and Odisha.

Nonetheless, when compared to resource-rich countries such as South Africa, Australia and Brazil where the sector’s average contribution to GDP is between 12 to 15%, India’s share is a miniscule 2%. This clearly shows that the sector has a huge potential to grow in the future.

It is in this regard that the government has recently announced approval of 100% FDI under the automatic route for coal and lignite mining for captive consumption by power projects, as well as iron and steel and cement units. So far, only Coal India Ltd. (CIL) could mine and sell coal in the country along with private and public sector companies with captive mines who could mine and sell 25 per cent of coal in the open market. With the deregulation of the sector, private and foreign companies will also be able to mine and sell coal now.

To further liberalize the coal sector and attract foreign investments, the Ministry of Coal has decided to remove another archaic law of end use restriction thus enabling anyone to participate in the auction of coal blocks. This historic decision will have a multitude of positive results such as helping achieve the overarching objectives of India’s energy policy and meeting India’s coal demand which is expected to rise by 21% from its current levels to 1.2 Billion tonnes in 2023.

This move to amend the law will help India achieve economies of scale, gain high end technology in mining in par with global standards and create an energy-efficient market, improve labor productivity, usher in a healthy competition in the sector and reduce coal imports.