• You are here:
  • Inclusion Home
  • Will 1st September decide fate of Indian economy?

Will 1st September decide fate of Indian economy?

Gyanendra Keshri, Executive Editor, INCLUSION

Coal, which is often described as

The fate of the two hundred-odd coal blocks allocated since 1993 hangs in the balance after the Supreme Court declared that these allocations were made arbitrarily and illegally. A further hearing on the issue is scheduled on 1st September, when the apex court is expected to decide whether to scrap the allocations altogether, or to impose some sort of penalty on those involved.

India’s economic growth is estimated to remain below 5 per cent for the third consecutive year this fiscal. The Supreme Court’s decision will impact not only coal mining corporations but also have a far-reaching impact on the Indian economy. It will determine whether or not the economy - already reeling under the worst ever growth slowdown since the 1980s - will embark on a path to recovery.

One of the members of the inter-ministerial panel appointed by the UPA government to make recommendations on the coal block allocations said that the apex court should allow mining from the blocks where the production has already begun or substantial investments have been made. “Impose penalties on those who are found guilty,” a member of the panel told INCLUSION.

Coal, which is often described as “black diamond”, plays a pivotal role in the Indian economy, especially in the industrial sector. Coal-based power generation accounts for more than two-thirds of India’s total power production. Metal, cement and several other manufacturing activities are heavily dependent on coal, either directly or indirectly.

If the domestic supply is disrupted the country will be required to increase imports. This is estimated to increase the country’s import bill by an additional $3 billion.

Despite being endowed with one of the world’s largest coal reserves, India is heavily dependent on imports of the fossil fuel. India imported 168.4 million tonnes of coal in the financial year 2013-14, while the domestic output stood at 565 million tonnes. More than 80 per cent of the domestic production is by Coal India Ltd.

The government-run Coal India that enjoys near monopoly has failed to ramp up production in recent years due to delays in acquiring land, getting environmental clearances, and inherent inefficiencies.

Production was hit especially after the Comptroller and Auditor General (CAG), in its 2012 report, questioned the arbitrary allocation procedure saying it had cost the exchequer a notional loss of Rs 1.86 lakh crore.

The ruling on coal block allocations came on the heels of the Supreme Court’s decision to scrap 121 telecom licenses in February 2012. This sends a negative and dichotomous signal to industry and hence raises questions over the certainty of the policy environment in the country. Cancellation of the coal block allocations would further hit investor sentiment.

Prime Minister Narendra Modi has been trying hard to convince investors that the new government means business and that they will ensure a business environment conducive to growth.

The apex court ruling will also have a huge cascading effect on the country’s banking sector, which is already hit by a sharp rise in Non-Performing Assets (NPAs). India’s listed banks had Gross Non-Performing Assets (NPAs) or bad loans to the tune of Rs 2.5 lakh crore ending March 2014. Government-run banks that account for two-thirds of loans, have over 80 per cent of bad assets. Gross NPAs of public sector banks rose to 4.03 per cent in the financial year 2013-14 from 3.42 per cent in 2012-13 and 2.94 per cent in 2011-12.

Banks have an exposure of over Rs 1 lakh crore to the power sector alone, and this will put enormous pressure on their asset quality.

Out of the 210-odd allocations since 1993, 190 were done during the Congress party-led United Progressive Alliance (UPA) government.

The allocation procedure, adopted during this period, was based on the recommendations of screening committees. The other procedure adopted during the period was that of a government dispensation quota, wherein the allocations were made by the coal ministry to public sector companies. The Supreme Court in its ruling said the procedure suffered from the vice of “arbitrariness and legal flaws.”

(Gyanendra Keshri can be reached at gyanendra@skoch.in)

comments powered by Disqus