CRISIL says, "government’s move to open up commercial coal mining can halve the annual expenditure incurred on importing non-coking coal because of substitution through domestic production."
Sitharaman on May 16 said, "there is a need to reduce the import of substitutable coal and increase self-reliance in coal production"
The FM introduced commercial mining in the coal sector. Also, a much more liberalised regime has been targetted by the government.
Earlier, in coal, only captive consumers with end-use ownership could bid. Now, the government will allow any party to bid for a coal block and sell in the open market.
Also on May 20, the Union Cabinet approved liberalisation of coal mining by eliminating eligibility conditions for private sector participation.
Sachin Gupta, Senior Director, CRISIL Ratings, “The decision to liberalise coal mining will engender a significant substitution effect by improving the availability of coal, and help meet rising domestic demand. Around half of India’s humongous reserves – most of which are non-coking coal – has not yet been allocated for mining so the potential is substantial.”
As of March 2020, India imported an estimated 180-190 million tonne (MT) of non-coking coal costing over Rs90,000cr, as per CRISIL.
Currently, government-owned Coal India and Singareni Collieries produce over 90% of the coal. Domestic supply grew at a compounded annual growth rate of 3% over the past five fiscals.
Further, Nitesh Jain, Director, CRISIL Ratings, “Once commercial mining picks up, independent thermal power plants and captive power plants can substitute their annual imports of 80-90 MT. However, 45-50 MT would continue to be imported by the thermal plants designed to operate only on such feedstock.”
Incremental production from its mines will also help bridge the demand-supply gap and reduce imports over the medium term, adds CRISIL.
Overall, CRISIL expects the move to save up to Rs45,000cr worth import bills.