Last month, there was something of a political earthquake in India as the Bharatiya Janata Party (BJP) trounced the ruling Indian National Congress in elections that count as the world’s largest expression of democracy. The BJP, led by Narendra Modi, achieved an outright majority in parliament’s lower house: a feat previously only Congress had achieved in India’s normally fractured polity – and that, 30 years ago.
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Modi’s victory was built on promises of strong government and economic reform: the country is in desperate need of both. Three decades ago, India’s GDP per head was roughly the same as that of China; it is now only a quarter of the size. As the Chinese economy sprinted into the new millennium and now looks set to overtake the US as the world’s largest this year, India’s has spluttered only fitfully forward and remains fragile.
The size of the BJP victory provides Modi with the mandate needed to push reform. He also comes with a track record of doing so: in Gujarat he gained a reputation as a capable and pro-business chief minister. But he will need all of his authority and skill to turn India around in the face of powerful vested interests. A good place to start would be the country’s coal and power sectors.
There is much here to tackle. Despite boasting some of the largest coal reserves in the world, India suffers from a chronic shortage of coal and the power that comes from burning it. Its mining sector in particular is opaque, bureaucratic and scandal-prone. Approvals for mining projects can take years: in March, Mahanadi Coalfields, a unit of the state-owned mining company, Coal India Ltd (CIL), was forced to close one of its major mines in the state of Odisha, when its environmental approval ran out. It had been waiting for a renewed permit for two years.
Beyond India’s byzantine bureaucracy, much of the blame for India’s coal shortages lies at the door of CIL, which is responsible for 80% of the country’s coal output. This corporate behemoth has proved to be consistently incapable of providing enough of the black rock to keep India’s power plants running, leaving them dependent on the vagaries of the global coal market.
Rumours that Modi was planning to reform the coal sector began soon after his victory. “The story is about Coal India, whose productivity […] has been poor,” a member of the BJP’s economic team told Reuters, promising that the new government would bring wholesale changes to the company.
One option would be to break up CIL into smaller, regional producers and give state governments shares in the company. This would give local government – often a source of delay in the permitting process – a stake in developing mines and hopefully speed the system up. Another – more radical – option touted by the former chairman of CIL, Partha Bhattacharya, would be to leave the company intact but privatised, while opening up the sector to global mining companies with the expertise required to improve production. “It is time that we denationalise […] because opening up […] the sector is the most crucial step that the new government can take to bring in multiple players, players with core competence in coal mining and that can make all the difference,” Bhattacharya told CNBC-TV18.
As the pageantry of the swearing-in ceremony fades and the new prime minister settles into his job, there is much that will require his attention. Coal industry reform may not be particularly glamorous but it is essential to get India’s economy back on track. Modi promised much on the campaign trail and voters flocked to him; now it is time to repay their trust – and make sure their lights stay on.