India Inc cheers as coal mining opens up to Indian and foreign private companies

Coal mining opened up to Indian and foreign private companies; allocation of coal, bauxite and other minerals to become a transparent affair.

By ET Bureau | Mar 21, 2015, 07.00 AM IST

NEW DELHI: Parliament has opened up coal mining to Indian and foreign private companies and allowed transparent auction of coal, bauxite and other minerals by passing two game-changing laws that could potentially free private enterprise from decades of socialist controls resulting in billions of dollars of investments by Indian and foreign miners.

Overcoming stiff opposition in the Rajya Sabha, where the ruling party is in a minority, the government displayed deft political management to pass the Coal Mines Special Provisions Bill as well as the Mines & Minerals Development and Regulation (MMDR) Bill. The government obtained the support of regional parties such as Trinamool Congress, Biju Janata Dal and AIADMK by dangling the carrot of revenues which states will receive from the auction of mines, thus overcoming opposition from Congress and the Left. Many states are also eager to see a resumption of mining, which has come to a halt in various parts of the country because of bans imposed by courts.

The new coal law gives the government the power to allow private companies to mine coal and sell it in the open market, ending four decades of state monopoly. So far private companies could mine coal only for use as fuel in their own factories. The government has assured workers of Coal India that the state-run giant’s interests will be protected, and that it is not in a hurry to get private firms to start commercial mining operations, but the new law allows it to go ahead whenever it wants.

The Bill passed on Friday essentially amends the nationalisation of coal mining by former prime minister Indira Gandhi in 1973, something alluded to by veteran Congress leader Digvijaya Singh during the debate in the Rajya Sabha.

Friday’s developments are likely to boost the morale of industry following as it does recent parliamentary approval of bigger stakes for foreign insurance firms operating in India.

The passage of the two Bills means the Modi government has now managed to obtain Parliament’s approval for three of the four reform measures that were implemented through ordinances.

Getting Parliament’s nod for the fourth — amendments to the land acquisition Act passed in 2013 — could be a lot tougher as the Opposition has so far united in opposing the changes to the Act passed by the previous UPA government.

Minister for Coal, Power and Renewable Energy Piyush Goyal said commercial mining would be used to augment resources. “After we meet requirements (of end-use plants, public sector units and state governments) we have duty to give coal to Rs 7-8 crore housewives and small-scale industries such as brick kiln and bangle manufacturers who will get coal not from illegal sources but at cheaper rates,” he told reporters.

He said the next round of auction is likely to start by end-April and will involve the sale of 15-20 coal blocks.

Congress leaders alleged the new coal law amounted to backdoor privatisation but Goyal triumphantly declared the government had widespread support. “All states have welcomed the Bill but only three political dispensations — one that was outrightly rejected by people of India, Congress; DMK — that was rejected by Tamil Nadu, and the Left — that was rejected by everybody in the country,” he told reporters.

The new laws will cheer industry leaders, who were excited about the formation of the Modi government last year, but appeared to be increasingly getting anxious about the absence of game-changing reforms and policies, particularly after BJP’s humiliating loss to Aam Aadmi Party in the Delhi election and the aggressive stand that Congress was taking in Parliament. Finance Minister Arun Jaitley said parliamentary approval for the new laws signalled the defeat of ‘obstructionism’ by Congress, according to a PTI report.

“The passage of Bills is a huge positive for the economy. With this, I expect things to start picking up from June onwards. If coal sector does well, the infrastructure performance will pick up, which will have a multiplier effect on the economic growth,” said Soumya Kanti Ghosh, chief economic adviser, SBI.

Industry bodies echoed the sentiment. “This will bring in much-needed transparency in the allocation process and kickstart the mining sector, which was languishing for want of clear guidelines,” CII Director-General Chandrajit Banerjee said.

TRANSPARENT AUCTIONS

Kamlesh Bagmar, senior research analyst (institutional equities) at Prabhudas Lilladher, said the biggest gainers will be Tata Steel and SAIL because all their mines will get automatic extension till March 2030. Analysts said in Karnataka, merchant miners too will be allowed to bid for iron ore mines, thus increasing competition.

The enactment of the two laws allows transparent auction of mines, a process that has already begun. The ongoing auction has attracted aggressive bids, which will give states about Rs 2 lakh crore over the life of the mines that have been auctioned so far. Further, the auction process ends the opaque system of mine allotment, which drew sharp criticism from the Comptroller & Auditor General and contributed to the collapse in the authority and standing of the Manmohan Singh government. The allocation of all coal mines since 1993 was struck down by the Supreme Court in August last year.

In the coal sector, foreign companies with Indian subsidiaries will be eligible for commercial mining.

This provision is expected to attract global mining giants and make the sector more competitive and cost-effective.

Industry executives said the enactment of new laws is reassuring as it strengthens the auction process of coal mines, which had been facilitated by an ordinance.

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The limit of reduction of health insurance premium was enhanced from Rs 15,000 to Rs 25,000. For senior citizens this limit has been increased from Rs 20,000 to Rs 30,000.

"For senior citizen above the age of 80 years, not eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical expenditure. Deduction limit of Rs 60,000 on expenditure on account of specified diseases is enhanced to Rs 80,000 in the case of senior citizens," Jaitley said.

Additional deduction of Rs 25,000 is allowed for differently-abled persons, increasing the limit from Rs 50,000 to Rs 75,000. It is also proposed to increase the limit of deduction from Rs 1 lakh to Rs 1.25 lakh in case of severe disability.

Jaitley also proposed to provide that investment in Sukanya Samriddhi Scheme will be eligible for deduction under section 80C of the income-tax and any payment from the scheme shall not be liable to tax.

Limit on deduction on account of contribution to a pension fund and the new pension scheme is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh.

Additional deduction of Rs 50,000 will be allowed for contribution to the new pension scheme u/s 80 CCD increasing from Rs 1 lakh to Rs 1.5 lakh.