Coal and Mining Sector

Coal Crisis in India

More than half of the country’s 135 coal-fired power plants are running on fumes – as coal stocks run critically low.  They have fuel stocks of less than four days, government data shows.

Coal shortage in India

  • In a country where 70% of the electricity is generated using coal, this is a major cause for concern as it threatens to derail India’s post-pandemic economic recovery.
  • Utilities are scrambling to secure coal supplies as inventories hit critical lows after a surge in power demand from industries and sluggish imports due to record global prices push power plants to the brink.

How did the crisis escalate?

  • As India’s economy picked up after a deadly second wave of Covid-19, demand for power rose sharply.
  • Power consumption in the last two months alone jumped by almost 17%, compared to the same period in 2019.
  • At the same time global coal prices increased by 40% and India’s imports fell to a two-year low.
  • India is the world’s second largest importer of coal despite also being home to the fourth largest coal reserves in the world.
  • Power plants that usually rely on imports are now heavily dependent on Indian coal, adding further pressure to already stretched domestic supplies.

What is the likely impact?

  • Experts say importing more coal to make up for domestic shortages is not an option at present.
  • India has seen shortages in the past, but what’s unprecedented this time is coal is really expensive now.
  • Businesses at the end of the day pass on these costs to consumers, so there is an inflationary impact – both direct and indirect that could potentially come from this.
  • If the crisis continues, a surge in the cost of electricity will be felt by consumers.
  • Retail inflation is already high as everything from oil to food has become more expensive.

Other reasons for this crisis

  • In recent years, India’s production has lagged as the country tried to reduce its dependence on coal to meet climate targets.
  • Prices of power-generation fuels are surging globally as electricity demand rebounds with industrial growth, tightening supplies of coal and liquefied natural gas.
  • India is competing against buyers such as China, the world’s largest coal consumer, which is under pressure to ramp up imports amid a severe power crunch.
  • Rising oil, gas, coal and power prices are feeding inflationary pressures worldwide and slowing the economic recovery from the COVID-19 pandemic.

Challenges posed

  • The desire to cut its reliance on heavily polluting coal burning power plants has been a major challenge for the government in recent years.
  • The question of how India can achieve a balance between meeting demand for electricity from its almost 1.4bn people has to be answered.

What can the government do?

  • Experts advocate a mix of coal and clean sources of energy as a possible long-term solution.
  • It’s not completely possible to transition and it’s never a good strategy to transition 100% to renewables without a backup.
  • Long term investment in multiple power sources aside a crisis like the current one can be averted with better planning.
  • There is need for closer coordination between Coal India Limited – the largest supplier of coal in the country and other stakeholders.
  • For now, the government is working with state-run enterprises to ramp up production and mining to reduce the gap between supply and demand.

Way forward

  • This is a global phenomenon, one not specifically restricted to India.
  • It is unclear how long the current situation will last.
  • With the monsoon on its way out and winter approaching, the demand for power usually falls.
  • So, the mismatch between demand and supply may iron out to some extent.

Try answering this PYQ:

Consider the following statements:

  1. Coal sector was nationalized by the Government of India under Indira Gandhi.
  2. Now, coal blocks are allocated on lottery basis.
  3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self- sufficient in coal production.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 3 only

(d) 1, 2 and 3


Post your answers here.
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Swanand Nilakhe
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its (a) 1 only


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