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Coal decision could light up the entire East

Possibly the biggest reform to have transpired since the Monopolies and Restrictive Trade Practices (MRTP) Act was scrapped in 1991 was the October privatisation of India's coal sector.

A number of reasons make it seminal.

One, India holds among the largest coal reserves in the world. When you make alterations in the ownership and entrepreneurship profile related to these reserves, this could have a sweeping (domestic and global) impact.

Two, the government responding to issues raised by the Supreme Court indicates the two are finally on the same page, creating the legal foundation for long-term policy clarity.

Three, the auction process will result in a transparent market-based price discovery process that is likely to generate considerably higher revenues for the government.

Four, normally the divestment of such assets would have gone to the Centre; in this case, they will accrue to the states in which the mines are located, which means that for the first time it will be possible to correct the long-standing reality where the mineral-richest states in India were also its poorest.

Five, the speed (less than a month) with which the ordinance was translated into a legal framework indicates the seriousness of a new government to get this sector moving.

Six, the scrapping of the old order will not derail the economy (as was feared) because the existing mine operators have been permitted to continue operations until the end of this financial year, by which time the auctions will have been conducted and new ownerships seamlessly transferred.

Seven, the beauty of the arrangement is that the first auction round will not entail land acquisition issues, mining infrastructure investment and clearances, minimising the gestation for getting into business.

By creating an opportunity for new players to enter (including international companies through their Indian subsidiaries), the country's coal sector could emerge as the fastest growing. Besides, the entry of more players could strengthen service and technology investments. Coal trading is likely to become a reality. And best, coal availability is expected to increase substantially (double in 10 years?) while remaining affordable, creating a robust resource foundation for international competitiveness.

For all those who seek investment proxies, this could be the start of an exciting period. From one direct play (Coal India) and various indirect plays (Elecon Engineering, BEML, TRF, Solar Industries and International Conveyors), we could now have more mini-Coal India clones in addition to a wider coal ancillary sector.

From a more selfish perspective, the pass-through of auction proceeds to state governments holds out prospects of cash-strapped governments restructuring their balance sheets, investing in rural schemes and urbanisation that could translate into larger investment, job creation, reverse-migration and economic growth. This is the biggest opportunity then for the Kolkatas, Durgapurs, Patnas, Bhubaneswars, Raipurs and Asansols of the world; if this inflow can give these cities a leg-up then this reform could light up an entire zone, resulting in the most serious wealth creation that this part of the country has seen in decades.

And all this could start two years from now.

Source: Business Standard