Allocation of coal blocks in India

Abstract

This paper discusses about the rational approaches of distributing non-renewable natural resources with prime focus on debate of allocation of coal resources in India. Coal is one of the most widely used Non-renewable natural resources. In India, its inefficient allocation raised serious questions. The political stir surrounding the coal scam underlined the problems of inefficient system of allocation of coal blocks. The process of assigning mineral rights by awarding coal blocks on case to case basis through screening committee and Government dispensation route was initiated with intention to augment coal production and bring private investment in the sector. But the outcome did not match the expectations. Only 14 coal blocks could commence production among the 218 allocated coal blocks. Many of the companies were allocated coal blocks without thoroughly examining company s capabilities and by making exception to the guidelines. Comptroller and Auditor General (CAG) of India estimated a loss of around Rs. 1.86 Lakh crore to the exchequer due to misallocation of coal blocks. Lot of cases of corruption and negligence of responsibilities were reported. As a result the Supreme Court of India cancelled 204 of the coal block allocations considering them as arbitrary and illegal. Such an episode of coal scam not only caused the financial losses but it also damaged the image of Brand India. In this setting, this paper tries to identify the root cause of allocation problem. It answers to the root question about the property rights over minerals and resolves the matter of ownership and rights to extract and exploits mineral resources such as coal. The paper discusses about worldwide scenarios followed in various countries for allocation of high value scarce natural resources. Paper compares situation of India with that of South Africa and underlines learning s and relevance from their approach. It points out various possible alternatives of allocating coal blocks and analyzes their consequences on social, environmental and economic equity and efficiency objectives. It summarizes allocation through competitive bidding and auction as best possible alternative in the current scenario for India and also evaluates current allocation policy pointing out various risks and challenges. Paper presents allocation of coal block through auction as the best possible alternative and evaluates auction policy being followed by Government of India currently. However, it is observed that the devil lies in details. Although auction seems to be the best possible alternative but it requires various other mechanisms and institution to make it successful. It cannot be considered as method of earning revenues for the Government as it is also a question of using resources efficiently and then redistributing them equitably. Paper tried to explore the deficiency and areas of improvement in the current auction policy and therefore, Author took liberty to recommend some of the aspects to improve the auction policy embraced by Government in recent times. However, as this is an ongoing process it is difficult to collect significant data regarding economic impact, Empirical evidences are used to infer the impact.