Mining News

India Ends 40 Year State Monopoly

Posted by Cheryl Rutledge on 1/9/2015 11:07:01 AM

By Sean Taggart and Kenneth P. Green

India’s parliament recently voted to end a 40 year state monopoly on coal mining. The new bill, endorsed by Prime Minister Narendra Modi, now gives private companies the right to mine and sell coal in India, where before they could only mine to fuel their own energy demands.

The change comes in reaction to state owned producer, Coal India, struggling to meet the fast growing nation’s coal demands. Especially prevalent in the power generation sector where almost 25% of Indians are still without electricity, many consumers are looking overseas to meet their needs. Given that Coal India holds 80% of the producing market through government imposed barriers to entry, they have little incentive to innovate and grow to support the country’s development.

This has caused India to import record amounts of the commodity to account for the mismanagement and inefficiencies within the industry, despite holding the world’s fifth largest coal reserves.

The shortages have also caused repeated blackouts this year, where coal-fired power plants generate 60% of India’s electricity. The Federation of Indian Chambers of Commerce and Industry estimate that these outages have cut the nation’s GDP by $US68 billion or almost 4%.

Prime Minister Modi is urgently trying to address the bureaucracy and lack of competition that is responsible for an undersupplied market, choking the industrial growth of Asia’s third largest economy. He hopes that this bill will entice private producers to enter the market, alleviate this shortage and help him keep his election promise of providing electricity to all Indians by 2019.

The change has also been supported by India’s Coal Ministry who published a 27 page ordinance stating that any company or joint venture “may carry out coal mining operations in India, in any form, either for consumption, sale or for any other purpose.”

With private investment now being welcomed by India’s government, they look set to improve on their ranking in the 2013 Fraser Institute Mining Survey. Finishing 63rd last year, mining executives can be encouraged by the new show of support after previously accusing the government of illegally seizing mine sites unjustly.

By now empowering private companies to enter a historically public market, it seems Prime Minister Modi and his government understands the importance of free market competition and the economic benefits it can bring.

There is still strong opposition from Trade Unions who fear that the privatization of this industry will lead to cuts in workers’ wages and benefits. Strikes are being threatened for the coming weeks leaving Prime Minister Modi to face a Thatcher-esque scenario. The one difference though: he is trying to increase production, not lessen it.




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