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Revealed
India's Third Giant Leap

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FDI in coal sector still a distant dream?
Wed, 4 Feb Pre-Open

When global sector leaders face many hurdles with certain investment decisions, it can be assured that the rest of the players will think more than twice before making a similar move. A case in point is global mining major Rio Tinto Plc's one decade long wait before starting mining operations in India.

Red tape is an area that has been a key pain point for India in the past. This, along with other factors such as delayed land acquisition and environmental approvals are reasons for global players not finding India as an attractive destination yet. While the current government has clearly given its intention towards removing these hurdles, implementation of the same would definitely help repaint the FDI canvas in the Indian mining sector.

What also adds to the woe is the fact that the quality of Indian coal is inferior in grade; and price of Asian coal is currently at it as 6-year lows.

However, with the government looking to rapidly expand coal production by allowing private players to mine and sell coal (for the first time in 42 years), expectations are set high. India aims to take coal output up to 1.5 bn tonnes by 2020, double that of current output. Apart from increasing output and helping meet the nation's requirements, foreign players were also expected to bring in technologies to help the nation's largest coal player become more efficient.

As reported by the Mint, Coal India has an output of about 1,100 tonnes of coal per employee per year. In comparison, the same stat for Peabody Energy stands at 36,700 tonnes while that for China based Shenhua Energy stands at 12,700 tonnes.

Clearly, there's huge room for improvement.

We believe that working on aspects to bring in private investments is the need of the hour. Especially, considering the ripple effect it could have on the economy. Not only would it improve the output and in the process meet the local requirement, but would also curb imports and bring down costs lower as a result of competition. The latter in turn would force companies to improve upon their efficiencies and productivity – a point that Vivek Kaul had also highlighted in this recent article - Revealed: The real reason why Coal India unions were on a strike.

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