India’s Coal Industry Moves Towards Privatization Amidst Trade Union Protests

October 21, 2014 Posted by India Briefing Reading Time: 4 minutes

DELHI – The Indian government on Monday approved a decree that will denationalize its coal mining industry and open it up to privatization, drawing equal amounts of praise and criticism from various quarters.

India’s coal industry forms an integral part of its energy sector, generating more than half of the country’s power supply every year. Although no specific date has been given on when the privatization process will begin, mines owned by some of India’s most well-known companies , such as Power Ltd and Jindal Steel, will eventually have to go up for sale. Commercial mining will be permitted, and an electronic auction for the mines will likely take place before the end of the current year.

The response to the new plans has been decidedly mixed. Whilst industry experts have welcomed the announcement, saying that they meet with the previous recommendations of India’s Supreme Court, others have expressed concern over what they will mean for India’s coal industry. The country’s trade unions have been particularly outspoken, claiming that privatization isn’t in India’s interest, will ultimately have a negative effect on coal production, and will be completely opposed by the coal workers.

However, despite the protestations of India’s trade unions, the current output of India’s coal industry certainly makes it seem like change is necessary. Although India controls the world’s fifth largest coal reserves, the country ranks as one of the biggest importers of coal. In the last two fiscal years, more than 15 billion units of electricity were lost due to the unavailability of coal. Power cuts have become commonplace in various cities and towns, and in 2011/12, power problems were estimated to cost the Indian economy upwards of US$ 64 billion.

India’s Prime Minister Narendra Modi has previously made clear his intention to address these issues, and steps have already been taken in several other energy sectors. Last week, the government relinquished control over diesel prices and implemented reforms on natural gas tariffs. Ending the state’s 40-year old stranglehold on the coal industry appears to be Modi’s solution to its coal supply problems.

Allowing private companies to manage India’s mines and sell its coal could certainly help expedite the mining process, but how the government deals with discontent from the trade unions may prove to be pivotal. If mine workers and executives turn their protests into actual strike action, the consequences for coal production could be disastrous. Any advantage gained from privatization would be undermined and the efficiency of the sector could suffer even further.

How this new decree is implemented will therefore be extremely important. Indeed, although reform is undeniably necessary, failure to properly address the relevant concerns could negate any possible improvement to coal production.

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