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Drawbacks of new coal auction policy
Wed, 26 Feb Pre-Open

Crony capitalism is part and parcel of India Inc's business practices. In fact, sectors like real estate, telecom and coal thrive on political nepotism. While the government has been taking steps to eliminate such business practices especially in the coal sector - the new coal auction policy is a testament to that - we believe that unless the sector is freed from government monopoly very little can be done to bring in complete transparency.

Let us first understand the changes that have been made to the new coal auction policy as highlighted in Live Mint. Then we will see whether these steps will bring in more transparency into the sector or not.

The coal scam was a result of political discretion exercised in awarding coal blocks. The new policy is no different with government retaining the power to allocate coal blocks. Further, mining being an environmentally sensitive issue, the entry barriers are high. And the new policy does nothing to address the same. If the entry barriers remain high, bureaucratic interference increases. This again lays foundation for favoritism. Lastly, ban on owning private mines has meant that there is no free market for coal. This creates an artificial scarcity in the system despite abundant reserves.

The need of the hour is to de-regulate the coal sector by reducing government interference. The job of the government is to have proper oversight. However, in this case, the government has retained control over the commodity and has made only some cosmetic changes to the new auction policy. Also, we need competitive bidding in the coal mining space as was the case with telecom recently where there was bidding for spectrum. Bidding ensures fair price and eliminates the chances of cronyism.

Unless such meaningful changes are made to the coal auction policy, the element of corruption will continue to remain. And considering that politicians breed on corruption, it may take ages before we see bureaucracy focusing solely on governance. We feel that excessive government interference (increases element of corruption) in matters relating to allocating resources of national importance will hurt our economic prospects.

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