Cut import, tackle domestic coal glut
It is discomforting to note that India is suddenly faced with a domestic coal glut situation with an annual production of only a little over 600 million tonnes. On the contrary, China produced 3.68 billion tonnes of coal in 2015 and was crying hoarse that the output was 3.5 percent lower than the previous year’s production.
Coal accounts for 73 percent of China’s electricity generation, nearly the same as India’s in percentage terms. In a way, India’s current domestic coal glut is mainly on account of uncontrolled coal imports mostly by private sector power companies. This year’s pre-budget economic survey put the previous year’s coal import figure at over 212 million tonnes--more than 20 percent of the country's production that year. India’s coal imports may be down this year, but they need to be curbed drastically to maintain the tempo of domestic production.
Most Indian power plants are said to be sitting on adequate coal stocks, indirectly compelling Coal India, the country’s No.1 coal producer, to go slow on production during the first two months of this fiscal. Power plants are reportedly requisitioning less coal as their stockyards are full to the brim.
In the last two months, Coal India’s sales growth was approximately 1 percent compared to 7.4 percent achieved during the same period, last year. The public sector company’s production during the two months was up by only 0.5 percent as against 11.8 percent in the corresponding period, last year. Three of Coal India subsidiaries – Eastern Coalfields (ECL), Bharat Coking Coal, and Central Coalfields (CCL) – witnessed negative sales growth ranging from five percent to 14 percent. Both ECL and CCL had to cut down production. Western Coalfields’ output was down by over 25 percent.
Coal production statistics are sending wrong signals to India’s economic growth and economic priorities, especially with regard to the important brick-and-mortar sector. Coal is directly linked with the output of other important sectors of economic growth such as power, steel, cement, and fertiliser. Unfortunately, the growth is slow in all the four areas, making the economy look rather vulnerable in the long term.
Neither the Niti Aayog nor the Union Cabinet seems to be quite concerned about the uneasy development. Steel and fertiliser continue to be imported in large quantities. Capital goods and components are also being vastly imported.
The schemes like “Make-in-India”, “Start-Up India”, “Stand-Up India”, and “Skill India” have not spurred a visible improvement in the real economy. They sound more like political slogans than affecting a strong tangible impact on the economy in terms of production of goods for consumption of millions living on urban fringes and rural areas without proper housing, electricity, roads, sanitation, schools, and hospitals.
Instead, the virtual economy, riding on the internet, cell-phones, smart-phones, e-commerce, e-wallet, and digital network, among others, are showing an unsustainably high rate of growth. Few realise that the trend can’t continue if the basic economy chokes or stays weak. A sudden downturn in China's basic economy has already impacted its virtual economy. The virtual economy is struggling to sustain itself by making quick investments outside China. In fact, India is one of its most preferred destinations.
If the fall in coal and power consumption in China was strong enough indicator of a sustained slowdown of the world’s second largest economy, India can’t comfort itself for long with its present 7 percent-plus economic growth riding mainly on cell-phones production and consumption, e-commerce and imports – from toys to motor cars and what-have-you. China is now busy working on a number of initiatives to strengthen its real economy and push highly subsidised export production as also foreign direct investment (FDI) to combat domestic demand slowdown.
In fact, China’s coal story is quite revealing. It has emerged as the biggest barometer of China’s economic growth. For almost two decades of China’s economic boom, the phenomenal surge of its coal production was probably the single largest contributing factor. The world’s largest coal and energy producer became the world’s second largest economy. However, its coal industry is currently struggling with a huge supply glut that has sapped prices and forced many mines to shut. Key coal-consuming industries like steel and power also experienced declines in 2015, with crude steel output dropping 2.3 percent over the year and power generation dipping 0.2 percent.
Incidentally, China is also the world’s largest producer of steel, cement, and fertilisers. It is also No. 1 in the construction sector. Its cement production, a very important coal consumer, also fell 4.9 percent in 2015, following a slowdown in construction activity. Lately, Beijing urged domestic coal companies to control output while it temporarily banned approvals of new coal projects. However, the country thinks that the situation will improve soon. The China National Coal Association feels that the current phase of economic slowdown will not last long and overall coal demand will gradually increase in the coming years before peaking in the middle of the next decade.
India will make a mistake if it takes the current domestic coal glut lightly. After years, the country’s coal industry is poised for good growth. While the government must control the unnecessary coal import and offer support to local coal producers, including Coal India, against dumping since international coal prices are dropping fast as a China-effect, the central and state administration should take the opportunity to invest big in urban and rural infrastructure, especially in roads, rails, highways and bridges, low-cost housing, water supply and sanitation, and fertilisers. It is rather sad that at a time when Coal India and associates were talking about raising production to one billion tonnes per annum, the country should face a sudden coal glut shock.
(The views expressed are strictly personal.)