Indian government cold towards increasing coal demand in the country

The Indian coal industry is one of the core industries in the country and is dominated by public sector undertakings, particularly Coal India Ltd. The industry involves coal and lignite mining, production and trading. Despite the presence of abundant resources, India has been facing persistent coal shortage in the last few years and has become a net importer of coal to meet its growing energy requirements. The Ministry of Coal allows production of coal from allocated coal blocks for specific stipulated use only. Generally, companies in the power, steel and cement sectors own coal blocks in India. The coal mines are government property and it has the sole right to mine and produce coal. This has resulted in inefficient use of available resources.

FY13 was a difficult year for the Indian coal industry owing to controversies surrounding coal blocks allocation scam. The supply of coal from domestic sources was not able to meet the huge demand for coal. In FY13, the demand for coal exceeded its supply by around 192 MT. The situation was more acute in the case of coking coal where the demand was nearly 1.5 times that of supply. However, the drop in demand for coal in China led to a decline in global coal prices during the fiscal year 2013 which made coking coal imports cheaper.

India’s growing energy requirements and rising per capita consumption, coupled with the reforms in land acquisition and environment clearances, bode well for the sector.

Key Findings

During the past three years, the demand for coal has superseded the total supply, which has resulted in a wide demand-supply gap. In FY13, the demand-supply gap increased by 19.2% y/y.
The total coal production in FY13 grew by 3.3% over FY12 production. The Ministry was able to achieve 97% of the targeted production.
In FY13 budget, the government waived off customs duty of 5% on non-coking coal. It also decreased countervailing duty to 1% from 5% to ease import of non-coking coal. As a result of duty exemption, non-coking coal imports grew by 75% y/y to exceed a figure of 97MT.
The coal production index slipped in the second half of FY13. The index recorded an average growth rate of 0.2% in 2HFY13 against 9.3% recorded in 1HFY13.