Challenges in the Indian coal industry

India is the world’s third largest coal producing country and fifth largest in terms of coal reserves. But the Indian coal sector is facing severe challenges recently and the irony lies in the fact that these challenges also include shortages.  The country’s rapid pace of development depends to a great extent on this sector’s performance. This sector forms the basis of development for many other industries. It is therefore important to point out the major challenges this industry confronts.

Demand and supply imbalance

One of the major problems underlying Indian coal industry is the mismatch between domestic demand and supply. In spite of being among the top in terms of global production and reserves, the country is still not capable to meet its domestic demand of coal and depend therefore on imports.

The Indian coal is mostly of an inferior quality with high ash content. Therefore the import of high-quality coal becomes essential. It is imported largely from countries like Indonesia and Australia. Declining coal quality also has an adverse impact on the environment making the problem even more serious.

Rising prices

Countries like Indonesia which are India’s major suppliers have started raising their prices looking at the current global demand. Thus India has to pay higher prices to import coal. Coal is not available in all parts of the country. Land acquisition is a challenging concern in this sector because limited land is available for mining. The owners of the lands suitable for mining usually charge random and very high prices for selling their lands.

Environmental concerns

Pollution is a serious problem that this industry is confronted with at present. The Government has recognized ‘go’ and ‘no-go’ areas where mining can be done and not be done respectively. The reasons were massive cutting of forests and damaging the wildlife of these areas influencing the environment negatively. It is a tough challenge as both the human health as well as environment need to be protected however increasing the coal production as well.

The problem of land acquisition has worsened in the presence of Naxalites in coal-rich areas. A significant portion of Indian coal reserves exists in the Naxal-hit areas making the issue even more sensitive and risky.

Poor infrastructure

In addition to the insufficient coal supply, there are also delays in coal supply. The delays happen largely because of poor infrastructure in the country. Supply usually takes place through rail and road networks but the logistics are poorly managed to lead to delays in further production. The investment in infrastructure is urgently required to avoid delays in inland transportation of coal from mines to consumption centres as well as from/to ports.

Low productivity

The labour productivity in the Indian coal industry is far below as that of many other countries. The output per man-shift in India stands at 3.8 tonnes which are as high as 65 tonnes in Australia. The labour cost is very high and accounts for 40% of the total cost of coal production. The high labour costs increase the coal production costs making it 35% more expensive as compared to countries like Australia, Indonesia and South Africa. Yet another problem is that the state-owned coal companies still have not integrated their mining systems with the latest technology. This results in less optimum production in the sector. The Indian coal sector suffers because of several regulatory requirements delaying the growth of the Indian sector. The shortage of coal in the country demands mine development but the tedious and time-taking regulations act as discouragement.

Widespread corruption

The Indian coal sector has recently been a hot topic for every news channel and print medium because of the manipulations and lack of transparency in coal block allocations. The government has been accused to allocate the nation’s coal deposits wrongfully to the public sector entities (PSEs) and private companies. The allocations were made to influential people rather than allocating the blocks on the basis of competitive bidding. The corruption slows down sector growth and delays overall development.

References

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.
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