Supreme Court's Coal Block Ruling Will Burden Economy With Imports, Cripple Power Sector

With the Supreme Court declaring all coal block allocations done between 1993 and 2010 as illegal, the entire economy stands to be affected if coal production drops, as imports could have additional expense of $ 3 billion.

195 coal blocks with reserves of nearly 45 billion tonnes were allocated in the period, most under the UPA rule between 2004 and 2011, and they now, given that they are deemed illegal, stand to be cancelled. 

Of these, 30 blocks were currently producing coal and were capable of producing up to 10 percent of the country's total coal production, but if the production is now stalled, India will have to again rely heavily on imports, thus affecting the current account deficit, which could have a bearing on the rupee.

According to Reuters, the additional imports could cost India about $3 billion if coal blocks are cancelled. 

A host of companies, such as Essar, Reliance Power, Jindal and others who had invested in coal projects are now holding their breath to see whether the court will cancel all allocations in its final verdict on 1 September.

Essar along with Hindalco have already invested ₹20,000 crore in the Mahan coal block in Madhya Pradesh to set up a 600 MW power project and a smelter unit, according to Hindustan Times.

With the new verdict, the viability of this project, like many others, will be eroded, and at present, investments worth ₹2 lakh crore are at stake, according to HT.

It is not just the power sector that's facing gloomy days ahead. Production costs of steel, metal and cement companies will also shoot up. Higher costs of these core material will further inflate prices in other economic sectors, thus threatening an impact on the entire country.

Thus, it is the overall economy that will now have to bear the entire brunt, as further imports of coal are likely to add expenses to the government to the tune of ₹17,000 crore per year, according to Firstpost.

India's power generating capacity will also be drastically affected. For example, three coal blocks allocated to NTPC had the potential to produce up to 30.000 MW of power in a year with the 1,354 million tones of reserves, but they are now illegal. 

And the blame for all this ultimately can be put on previous governments for the arbitrary allotment of coal mines to private companies.

The Supreme Court, in its reason for deeming coal allocations illegal on Monday, maintained that "the approach (of coal allocation) had been ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily".