The decision taken by the Supreme Court to cancel all but four coal blocks is likely to adversely impact the domestic coal supplies in the country and will erode investor confidence.
Currently, about 42 blocks are producing coal to the tune of 53 million tons and account for 10% of the total coal supplied in the country. This judgement will lead to serious supply disruptions as mining from these blocks will be hampered, further exacerbating the coal shortages in the country. Any disruption in the coal supplies will accentuate power crisis and force higher imports impacting the current account deficit.
“While the judgement may have been intended to bring in transparency, it will jeopardise the investments made in the sector. It will raise questions on sanctity of government policies impacting the investment climate. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term,” says Ajay Shriram, President, CII. It would also be important for the government to put in place a new transparent mechanism for allocation of coal blocks at the earliest, he said.
The court’s decision has created uncertainty and is likely to impact key sectors including power, steel and mining. In particular, given that the power sector is the largest consumer of coal in India (coal-based power generation accounts for 2/3rd of India’s electricity mix), this development is likely to exacerbate the shortage of fuel for the power sector. In fact, acute fuel shortages are already impacting the power sector and currently close to 80 million tonnes of coal are being imported to meet the sector’s requirements. Another sector that will be impacted by this ruling is the financial sector as the exposure of public sector banks to the power and steel sectors is considerable. In fact, banks account for over 60 percent of the overall investments in these blocks.
While CII supports moves towards enhancing transparency, efforts have to be taken to ensure policy consistency to protect investors. CII would like to reiterate that while it respects the judgement of the apex court decisions, taken retrospectively could impede future investment flow into the country.
New Delhi