While the Supreme Court ruling cancelling 214 of 218 coal blocks allocated since 1993 to iron and steel, cement and power companies is a landmark judgement, it has enormous implications that might both serve a body blow to the Indian economy as well as set a precedent that could reconfigure political apparatus from the scratch.
Certainly, the verdict is a slap on the face of the ad hoc and arbitrary manner in which the coal blocks were allocated to private sector companies that often severely lagged behind production targets and instead sold coal, acquired cheaply from the government-owned Coal India, at higher prices in the domestic and international markets.
Hence, the worst hit corporations, such as Jindal Steel and Power Limited (JSPL) and Hindalco, are no doubt deserving of the harsh ruling. But there are bigger considerations with direct fiscal impact at stake here. Firstly, loans to the tune of lakhs of crores of rupees were given out by public sector banks, with exposures to not just coal miners but also steel, power and allied projects related to the now deallocated blocks. It is imperative that a mechanism to retrieve this staggering amount of money is put in place so as to minimise their bad loan burden as well as ensure less non-profitable assets for PSU banks.
In this, the union government will have to work in tandem with RBI and devise a plan to restructure the loans and ensure that the money is not lost in the din of noisy technicalities. Secondly, a fresh method of coal block auction must be engineered on a platform of absolute transparency, efficiency and accountability. This, to make sure long-term durability of the next auction and elimination of any backchannel negotiation to obtain coal blocks, whether captive or not.
Moreover, it must be made certain that states producing their own coal shouldn’t be made to pay excessive penalty (fine imposed at Rs 295 per mega tonne, as per CAG estimation of loss suffered by the government exchequer) and that penalty must not trickle down to the end user. In order words, power and steel tariff must be kept in check, while it must be guaranteed that few private companies, particularly Anil Ambani-owned Reliance Power, do not end up making windfall gains in this massive churn.
The government also has to ensure that companies do not end up selling cheap imported coal to power plant projects and profit from this tectonic shift in the coal sector. Moreover, the focus should now be on strengthening of PSU companies like Coal India, NTPC and other state-owned power generation behemoths. In addition, India, which happens to be the third largest importer of coal despite being its fourth largest producer, has to now turn its gaze towards increasing domestic production and regulate the sector better.