The man credited with saving the Indian economy from collapse more than 20 years ago must act swiftly to prevent it from failure.
As finance minister in 1991, Manmohan Singh pushed through reforms to liberalise the Indian economy as it teetered on the edge of bankruptcy under the weight of rising oil prices triggered by Iraq’s 1990 invasion of Kuwait. Those reforms, followed by his adroit handling of the International Monetary Fund (IMF), which calmed India’s jittery trading partners and domestic political opponents, set the stage for the country’s economic boom through the rest of the century. As the Indian economy surged, Singh’s reformist credentials, coupled with his popularity, made him an almost automatic choice for prime minister in 2004.
However, challenges arose following his controversial decision to appoint himself coal minister from 2005 – 2009. The finance minister who dealt with India’s complex bureaucracy soon became a conservative prime minister who allowed the coal industry to create its own opaque system of rewards and favours, while the country’s coal-dependent power sector stagnated, just as its electricity demand surged.
While India’s economy grew at an average 6.8%/year in the first decade of this century, power consumption rose at a faster rate of 8.3%, according to its Ministry of Power. With more than 70% of its electricity demand met by coal-fired power plants, the country’s coal use grew at an average 6.2%/year to outpace domestic production.
Given its huge coal reserves, estimated by BP at more than 60 billion t, India should have had little difficulty meeting the power industry’s growing demand for the fuel. But it has, as well-connected companies that were awarded mining rights to rich deposits by the Ministry of Coal have failed to develop their allocations. This contributed to India’s worsening coal supply shortages that last year led to a power blackout, affecting an estimated 700 million people.
Weighed down by the country’s persistent energy crisis, the economy grew by just 5% in 2012, its slowest rate in over a decade. The outlook remains subdued, as businesses withhold investments in response to the country’s erratic power supply. The Indian rupee recently plunged to a record low of around Rupees 68 to the US dollar, as the country’s trade and fiscal deficits deteriorated on the rising cost of oil, gas and coal imports and weak growth in merchandise export.
The people of India are increasingly coming to the view that their country’s economic problems are linked to muddled energy policies set by a prime minister who has lost his reformist credentials.
Prime minister deflects pressure
More than a year after federal investigators began looking into the so-called “coalgate” corruption scandal, Singh remains in power despite attempts to tie him to the loss of an estimated US$ 33 billion from the misallocation of India’s coal mining concessions.
The 81 year old prime minister has come under pressure since the Comptroller and Auditor General (CAG) of India released a report in May 2012 that alleged mismanagement in the coal mining awards. The report said the government cheaply sold off the reserves to companies that had neither the expertise nor intention to develop them into fuel, contributing to India’s energy crisis. Instead, the companies used their coal allocations to trade favours, while India’s coal-dependent power companies were forced to import the fuel at high cost to generate electricity at subsidised rates.
Opposition parties, led by the Bharatiya Janata Party (BJP), are demanding the prime minister's resignation. His supporters, meanwhile, have cast doubts on the CAG's report as part of a bigger battle over the future of India’s failing energy sector.
The Central Bureau of Investigation (CBI), which launched the corruption investigation in mid-2012, is looking for missing files from Coal India Ltd (CIL) that supposedly implicate senior government officials in the scandal.
In May, Ashwani Kumar, the minister of law, and an official from the prime minister’s office resigned over allegations that they had accessed and tampered with a CBI report before it was submitted to court for evidence in the scandal. The prime minister defended the two men, but failed to prevent their downfall.
No solution to end coal supply deficit
Amid the brewing political crisis over coalgate, Sriprakash Jaiswal, the minister for coal, issued what industry analysts believe is a conservative projection for India’s coal supply deficit. Jaiswal predicts that the supply defecit will rise by 37.4% from 135 million t for the financial year (FY) ending 31 March 2013, to 185.5 million t four years later.
However, some private estimates have set the deficit at over 200 million t this year, while the Boston Consulting Group believes India’s coal import bill could surge to US$ 25 billion by 2017 from around US$ 16 billion last year.
With uncertainty surrounding coal and electricity supply, investors, including many of India’s own business groups, have delayed or reduced expansion plans.
Coal accounts for 55% of India’s primary energy supply and is the fuel that generates more than 70% of its electricity. Jaiswal said the Indian Government is encouraging CIL and the country’s private power companies to step up efforts to acquire coal reserves abroad.
A separate proposal to invite private companies help develop and mine the country’s large coal reserves has been met with lukewarm response, as they are expected to sell the coal at low prices set by the state.
This article first appeared in the January issue of World Coal. To read the second part of this article, please click here.
Written by Ng Weng Hoong
Edited from various sources by Sam Dodson
Read the article online at: https://www.worldcoal.com/special-reports/18022014/a_murky_business_part_1_536/