Deregulation as COVID19 response : Coal Mining Deregulation
What and why of Economic deregulation:
Economic deregulation is the easing of government norms and regulations for a particular industry making entry easier for future prospective players in the market. Under the broader umbrella of “less government and more governance vision,” this idea of deregulation helps to make the markets more efficient by enthusing competition and thus propel economic growth. The recent deregulation in the coal mining sector is a big step towards this vision.
Why is coal so important?
India is the second biggest consumer and producer of coal in the world. Its coal reserves constitute more than 9% of the total world’s reserve. Coal is still the largest source of power in the country. Especially the steel sector is completely dependent upon coal as a source of power. India being the second largest producer of steel and many other important metals like zinc, lead and copper; it needs a thriving and efficient source of power. The power and coal industry form the backbone of our country’s growth. These industries along with metal and mining form the primary base for many other dependent industries across the economy. The importance can be gauged from the fact that the mining and metals sector alone contribute about 5% of the GDP of the nation.
Why deregulation now?
Despite having the world’s fourth largest coal reserves, India imported 235 million tonnes of coal last year, of which 135 million tonnes valued at INR 171,000 crore could have been made from domestic reserves, coal and mines Minister Prahlad Joshi told the reporters recently. Being a strategic sector for the country it can have an overall impact on the foreign exchange earnings and its capacity to create a leverage for other vital sectors like power, construction, consumer durable et cetera is immense. In the times of this pandemic when the economic growth rate is at historic lows it is the responsibility of the government to get the economy going by creating more opportunities in the market. Easy access to this power source is thus a welcome step.
What are the proposed changes?
The cabinet approved the Mineral laws(amendment) ordinance 2020. This allows coal mining to any company by doing away with captive end use criteria. The captive end user criteria meant that a company had to be the end user of the power generated from the coal it mined. Now its not necessary and thus opens up scope for many players interested in the mining industry. Also, some other previous approval requirements have been dispensed with to speed up the process of project implementation.
How will it help?
This policy will lead to an efficient energy market, and reduce coal imports. Most probably the monopoly of the government owned PSU coal India limited will end. commercial mining will bring competition among various private players as mines will be leased on a revenue sharing model. This naturally pushes for mining efficiency and the measure of total tonnage is deemed to shift to profit/hour of mining. Which in turn will help India gain access to sophisticated technology for underground mining used by global miners. This will make for a lot of foreign investment in the sector, save precious foreign exchange and rapidly monetize our natural resources.
What it means for business?
This policy would lead to substantial substitution of imports. This would open up avenues nationally for mining and related technologies. The complimentary sectors of steel and metal fabrication, for example consumer durable (white goods) will see a very positive effect. A cheaper and competitive source for power will benefit infrastructure sector as well.
A lot of foreign mining giants are expected to invest spiraling up jobs in the economy. Similarly, other divestment plans of the government are very ambitious. These plans lower the entry barriers in the market and encourage innovation, entrepreneurship and leads to lower prices for customers. With complimentary credit incentives it is high time to invest in business once normalcy after COVID19 comes back. On a macroeconomic level taxpayers no longer have to pay for the expenses of regulatory agencies, which leads to more discretionary income fueling more demand in the economy. And thus when market forces are truly allowed to operate in an industry without interference, the customer ultimately becomes the winner.
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