Mining India's troubled history of coal and politics

India drew multiple headlines at COP26, but its role in the pledge to only ‘phase down’ coal highlights a deep-rooted and corrupt political relationship.

Expert comment Published 25 November 2021 Updated 21 December 2021 3 minute READ

Dr Gareth Price

Former Senior Research Fellow, Asia-Pacific Programme

The Indian delegation won many plaudits in Glasgow – demanding sufficient climate finance for developing countries, updating its nationally determined contributions (NDCs) for the first time in six years, and setting its first ever net-zero target for 2070, a date with ample room to be brought forward.

But, in the final moments when the text of the agreement was thought to have been agreed, India revised it with Chinese backing and the pledge to ‘phase out’ coal became one to only ‘phase down’ its use instead. Many countries – especially island states such as the Maldives facing existential threat – were palpably furious at this late move.

Many justifications were given for India’s move to water down moves to curb the use of coal, such as its earlier proposal that ‘developed country parties must take the lead in phasing out all fossil fuels’, its historic and per capita carbon emissions being vastly lower than more developed countries, and that it still needs access to some coal-fired power to lift hundreds of millions out of poverty. India also called for greater clarity regarding climate finance for transition.

Those arguing against India’s position focused on the domestic impact of its continued coal usage, most notably pollution which reportedly killed 1.7 million people in the country in 2019 and shortened the lives of millions more.

Coal’s relationship with politics

But India’s relationship with coal – a mineral it has in abundance – is not based on the same foundation as the historic and ongoing relationship in the US and elsewhere between governments and ‘big oil’. The debate over India’s latest move only paints half the picture as the coal sector is intricately linked to the country’s politics.

Although India does have numerous hydro projects and nuclear plants under construction, renewable sources must play a much greater role than currently envisaged

Coal has been mined in India since the 18th century and India is currently the world’s second largest producer and consumer of coal behind China. Following independence in 1947 the industry was small-scale with poor working practices and working conditions, and the rather piecemeal nature of the sector led to a mismatch between supply and demand, mainly from the power, cement, and steel industries.

India’s semi-planned economy led the prime minister Indira Gandhi to nationalize its coal industry in stages between 1971 and 1973, giving state-owned Coal India Limited and its subsidiaries a monopoly on coal mining until 1993 when the Nationalization Act was amended to allow private companies to undertake coalmining for their own use in steel, power, and cement, as well as gasification.

Initial interest was low with only 41 ‘blocks’ allotted between 1993 and 2005 by a high-powered committee chaired by the secretary of the coal ministry, while Coal India continued to monopolize commercial coal mining. But then an increased interest in political fundraising – due to a rise in coalition politics and the end of near continuous rule by Congress since independence – changed everything.

Being nationalized, the coal industry was already on the radar of India’s political class and, as the price of coal almost doubled from 2005-08, private sector interest in getting access to coal mining increased significantly, creating multiple bidders for the blocks which were being allocated in a rather arbitrary way. This provided copious opportunities for manipulation by both bureaucrats and politicians lobbying for their favoured companies.

Competitive bidding was introduced in 2010 to end the ad hoc system and, two years later, India’s comptroller and auditor-general claimed the prior process of allocating blocks had been both untransparent and unobjective because the criteria were so vague, any award could be justified. It was estimated the ‘windfall gain’ to those getting coal mines access since 1993 was £18.6bn and India’s Central Bureau of Investigation began to investigate blocks allocation in what became known as ‘Coalgate’.

Public interest litigation was also launched and in 2014 the Supreme Court declared the allocation of 214 from 218 captive coal mines between 1993 and 2010 had been illegal – an indictment of several governments as the windfall funds were assumed to have benefitted both businesses and their political allies.

But corruption in India’s coal sector is not confined to the allocation of licences, as it is also riddled with red tape, notably the requirement for various clearances at both state and central government level which enables profiteering. Under-reporting of production is reportedly a common practice by both private sector companies and Coal India with the surplus then sold on the open market at a profit. When it was listed in 2010 as India’s largest initial public offering, Coal India and its subsidiaries faced serious questions about governance and transparency, with potential investors at the time reportedly concerned about corruption.

Although India has substantial coal deposits it is not self-sufficient and relies on imports to top up domestic production. In 2015 the Directorate of Revenue Intelligence began investigating claims numerous large corporates routinely over-invoiced for coal imports from Indonesia to the tune of Rs50,000 crore (around £5 billion), as well as charging higher rates from consumers.

India’s relationship with coal – a mineral it has in abundance – is not based on the same foundation as the historic and ongoing relationship in the US and elsewhere between governments and ‘big oil’

Over-invoicing is popular because it circumvents capital controls and converts rupees into alternative currencies, as well as providing additional hidden funding – known as ‘black money’ – for political parties to spend in election campaigns. Official spending limits are low which leads political parties to seek out non-bankable funds to supplement legitimate spending.

The Adani Group, one of the companies alleged to be over-invoicing, is also currently developing the Carmichael coalmine in Australia, heavily criticized for environmental impacts such as the use of water, potential impact on the Great Barrier Reef, carbon emissions, and financial viability. Numerous banks have refused to lend to the project.

Reasons for optimism do exist

Despite India’s political class remaining addicted to coal, there are reasons for optimism as attitudes towards pollution – for a long time widely seen as a sign of progress or at least a necessary outcome of ‘development’ – are changing.

Off-the-scale pollution levels have become an annual occurrence as winter approaches in large parts of north India, and recently schools in Delhi were closed to guard against its effects, the state government considered imposing lockdown restrictions, and some neighbouring states ordered people to work from home.

Reasons for optimism do exist contd.

In addition, the cost of solar power and electricity storage is falling fast and the price of coal – even without pricing in negative externalities – is rising. And India’s commitment to greater renewable energy production is increasing, with the government announcing plans to bring online 500GW of electricity capacity from non-fossil fuels, with half of this being renewables, by 2030.

Although India does have numerous hydro projects and nuclear plants under construction, renewable sources must play a much greater role than currently envisaged if it is to even come close to this target and funding for coal projects is likely to fall.

With solar power projected to substantially undercut coal-produced electricity in the near-future – even Coal India is moving into solar – India’s under-construction coal-fired power stations are likely to become stranded assets. So despite the much-criticized moves at COP26, on many levels the status quo is clearly not going to be sustainable.