Kickstart economy

Kickstart economy

Coal is India's primary source of energy . It also happens to be an activity tightly controlled by government, with commercial mining restricted to the public sector. Private companies extracting coal are primarily in other businesses such as electricity generation and mining is means to an end. Simply put, private mining in India has been a no-go area. However, NDA government since March began to lay the groundwork to open up mining to the private sector. Following a few months of preparatory work, there are signs that private sector miners may get a look in.

To put this step in perspective, it is necessary to take a look at the evolution of the industry . Much like other key areas of economic activity such as banking and oil and gas extraction, coal mining too suffered a phase of nationalisation. However, while other areas began to invite private sector participation as part of their reform package, coal remained in a time warp. This only attests to the power of vested interests as there isn't a single convincing reason to keep competition out of coal mining. Competition and introduction of new technology are essential to improve efficiency in this sector.

Independent of private sector participation, the coal industry has witnessed important changes over the last couple of years. After Supreme Court cancelled allocation of 204 coal mines, India began a transition to auction of coal mines. Thus far 31 mines have been auctioned, a welcome change in the manner in which a scarce natural resource is being allocated. But if the switch to an auction process is to fulfil its potential, the pool of participants cannot be restricted. It makes no sense to allow a private power generator to participate in the auction but keep out a full-fledged mining company .

India's reform measures fizzle out because they are seen in isolation. To illustrate, if coal mining de-control is not accompanied by attendant de-control in the activities of end users, it will not work well. Prices vary according to demand and supply and price control in some parts of economic activity leads to distortions in related areas. With the economy in the doldrums ¬ growth having dipped to a mere 5.7% in the last quarter ¬ coal mining reform should be seen as a catalyst to kickstart growth.