India, like many large, developing economies, has a rapacious appetite for energy. Despite being the world’s third largest producer of electricity, approximately 300 million Indians don’t have access to it. The vast majority of India’s energy comes from burning coal, putting a great deal of pressure on Coal India, the government-run company that supplies about 80% of India’s coal.
The coal business has been a government-run monopoly for decades, after abuses against labour and poor investment in technology encouraged the government to nationalise it in the 1970s. Although this resulted in improvements back then, the question is whether that model still works for an India with ambitions of rapid economic growth, hoping to provide electricity to every citizen. The companies’ repeated failures to meet its own targets for coal production have caused many to believe that it is no longer suited to the job. It may be the single largest producer of coal in the world, employing 350,000 employees, but the roughly 460 million tons that Coal India churns out a year is not enough to meet India’s demand for the black stuff. 135 million tons of coal had to be imported this year to make up the shortfall for India’s power-plants.
The argument is that as a bloated state-run monopoly Coal India does not have the incentives that arise from competition to work in the most efficient way. Various suggestions have come in, from allowing FDI in coal, liberalising it like other critical fuels such as oil, as well as allowing the subsidiaries of Coal India to become independent and compete with each other. The government’s rhetoric on disinvestment of public sector undertakings (PSUs) and the calls to privatise Coal India have certainly spooked the workers of the behemoth, they’ve called for a token one-day strike on November 24th to protest against this idea. The workers have legitimate concerns of what the change might bring, but a wider role for the private sector and an end to Coal India’s monopoly is looking increasingly likely. Private players so far had only been permitted to invest in captive mining, which means providing coal for a specific factory or project, rather than selling it on the market. But power minister Piyush Goyal’s announcement declaring that India needs $250 billion of investment over the next few years, with the ‘bulk’ of the investment coming from the private sector seems to be a clear indication that changes will be introduced in coal. It doesn’t seem likely that so much private capital could be stumped up just for captive mining, especially after the Supreme Court ruling on coal block allocations, unless there was extensive reform of coal.
Privatisation and opening up of the coal industry may still not be enough on its own to produce as much as India needs, because despite possessing the worlds’ fifth largest coal reserves, much of that is below protected forests and reserves. It’s hard to see how simply privatising would overcome that hurdle, unless the government becomes much more lax with granting environmental clearances, which would not be ideal to say the least. Opening up to foreign investment could however bring better technology, competition, and the resulting improved productivity from existing mines, which could help to preserve more of the natural environment.
Although Goyal earmarked $100 billion dollars of targeted investment for renewable energy, the reality is that coal will be the mainstay of India’s power generation for a while to come. Whether that coal is produced by a monopoly or by a more open and competitive system may prove crucial for India’s growth in the coming years.
