The government should remove Coal India’s monopoly, make it pay

The Competition Commission of India has done well to levy a steep fine on Coal India and three of its subsidiaries for abuse of its dominant position in the market. CIL should quietly pay the fine, for reasons other than its culpability in the matter as well. For one, fines levied by the Competition Commission accrue to the consolidated fund of India. The government is the majority owner of CIL and its surpluses would accrue, in the main, to the government as well, whether as dividend or tax. By paying the fine, CIL would pass on revenue to the government without paying a dividend distribution tax. The only losers would be the minority shareholders, from whose income pool the amount of the fine would disappear.

But the main reason why CIL should pay up is that it is indeed guilty of the charges levied against it: supplying coal inferior in quality to what has been committed, entering into one-sided contracts and not adhering to its own commitments in such contracts. All these stem from the monopoly nature of CIL. The fault lies in government policy much more than with CIL. Inability to regulate safety in private mines led the government, in the wake of horrendous accidents that caused a hue and cry, to nationalise all mines. That was in 1973. The law has not been amended since then. And that can be blamed on our political class’ unwillingness to ruffle trade union feathers.

The reality is that state monopoly in coal has done grave damage to the economy. It has ensured coal shortage of almost 20% in relation to the demand, made installed generation capacity idle to the tune of 40,000 MW and thwarted rural power supply schemes. Captive mining and scams in the allocation of captive mines stem from this policy relic from the ‘socialistic’ past. It is high time the government scrapped state monopoly, broke up CIL to liberate its subsidiaries into autonomous companies and awarded professional miners mining leases on the basis of transparent auctions. If the CCI’s fine serves to break the inertia in the system, it would have done signal service to the Indian economy.