CIL is causing both fiscal and CAD slippages
If the government is looking for a single place to take concrete action to solve many of the country’s problems, it need not look any further than Coal India Limited (CIL). The government needs Rs 56,000 crore from disinvestment of PSUs and Rs 18,000 crore, or a third, was to come from selling 10% of CIL’s shares. Even after this, the government shareholding in the company will be as high as 80%. In other words, there is no question of CIL getting privatised for a very long time. The unions, however, don’t like even this and under their pressure, the government has already put off the sale once. Since a three-day strike has been announced for next month, it is not clear if the government will finally put off the sale.
If threatening the country’s fiscal strength wasn’t enough, CIL’s powerful unions have already wrecked India’s current account deficit and caused a lot of damage to the banking sector. With over 40,000 MW of power capacity not running due to coal shortages, that’s a huge strain on the banking sector since borrowers are delaying repayments. And thanks to the coal shortage, India’s coal imports are up two-and-a-half-times in the last 5 years, totalling to just under 1% of GDP or, more important, 18% of India’s current account deficit.
The way out is to bring in more private sector players into coal mining. Since the law doesn’t allow private sector miners to sell their coal at free-market rates and the government doesn’t have the courage to take on either CIL’s unions or other political parties that may support it—never mind that the BJP brought in a Bill to break CIL’s monopoly when it was in power—it chose the easier way out. In his budget speech, the finance minister announced a PPP-model to bring in private players to partner CIL. Even this, however, has not been cleared and while a very watered-down proposal is doing the rounds, even this has not moved closer to becoming policy.