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Foreign Investment in Coal Mining

New policy reforms in the coal sector are being brought by the government.

What are the features of new policy reforms?

1. It allows 100% foreign direct investment (FDI) under the automatic route for the sale of coal and for coal mining activities.

2. It includes associated processing infrastructure subject to provisions of the Coal Mines (Special Provision) Act, 2015 and the Mines and Minerals (development and Registration) Act, 1957, amended over time.

3. It allows foreign companies to extract coal for commercial purposes for sale in the open market and in “associated infrastructure” that include washeries, crushing, coal handling and separation.

Features of previous policy

1. 100% FDI through automatic route was allowed in coal and lignite mining for captive consumption by power, steel and cement units.

2. 100% FDI was allowed via the automatic route for setting up of coal washeries.

3. Firms could sell washed coal only to those units that supply raw coal for processing and not allowed to extract coal for commercial purposes for sale in the open market.

Why is this new policy significant?

Reserves of Coal

1. India has one of the largest reserves of coal.

2. Coal mining industry of India is the third-largest in the world.

3. It supplies the largest commercial source of primary energy.

4. Coal is used by power plants, metallurgical and cement industries as a vital raw material.

5. Therefore, coal industry has a major role in economy.

Insufficient Production

1. India has been importing coal to meet its growing energy requirements as domestic production by Coal India Limited has been unable to keep up with the demand for coal and meet the production targets.

2. Due to insufficient supplies of coal, power plants had been operating below their installed capacity necessitating imports to meet demand.

3. Imports of coal had been made at a cost higher than the prices of domestic coal.

4. In 2018-19, India imported 235 million tonnes of coal.

5. The rising imports and higher prices had an adverse impact on the current account deficit.

6. Liberalized policies are expected to augment domestic coal production.

7. It will bring into India newer and efficient exploration technologies and methods for mining coal such as high-end technology for underground mining used by global miners, which will help in lowering costs.

Competition

1. The policy will open up the industry to competition, which has remained the monopoly of Coal India Limited (CIL), a public sector company.

2. Later, along with CIL, private and public sector companies with captive mines were allowed to mine and sell 25% of the coal in the open market.

3. CIL, with 70.96% government stake produced over 83% of the coal in India in 2018-19, of which 81% catered to the needs of the power sector.

Related Policies

1. New policy would also push forward the implementation of related policies such as those for auction and allocation of coal blocks, environment and forest clearances, land allocation etc.

2. The entry of new companies will lead to fast-tracking of approval processes in a time-bound manner to reduce uncertainties regarding regulations and clearances in order to avoid risks to production.

Which are the constraints for private investment?

1. Private investments in captive coal mines have been minimal due to risks to production.

2. Entrants to the industry will have to acquire and develop new coal mines, which need some time period before the beginning of commercial operations.

3. This will also require large financial outlays.

4. Bidding and environmental clearances, inadequate infrastructure, and issues regarding land availability also need to be handled.

5. Constraints on profitability might also discourage new entrants and investments.

6. This might also affect the environment and ecology adversely.

7. Indigenous communities residing in the area might be deprived of their land.

Where is the way ahead?

1. There is a need to fulfill the larger objective of sustainable development.

2. Regulations and safeguards need to be strictly imposed on the mining firms so that they abide by environmental laws.

3. Health and safety norms for workers in mines must be strictly imposed.