Product Profile: Coal

HS CODE: 2701

• Current proven reserves of coal in the world are estimated at 1.1 trillion tonnes, which is sufficient for the next 150 years
• India is the world’s second largest importer of coal, and the commodity contributed US$ 24 billion to its trade deficit in 2018.
• The recent announcement of allowing 100% automatic FDI in coal mining will be crucial in substituting imports with domestic production and increasing capacity utilisation.
• However, difficulties in land acquisition, environment clearances, and tough domestic competition can negatively impact investor sentiment and delay expected gains in domestic supply. The real impact of this policy may only be visible over the medium term.

One of the most important fossil fuels in the world, coal is a combustible hard rock formed by the decay of plants in swamp waters. According to the World Coal Association, the current proven reserves of coal amount to 1.1 trillion tonnes worldwide, sufficient for use over the next 150 years at current rates of production. Major reserves of coal are found in regions of North America, Australia, Europe, Asia Pacific, India and China.

There are basically four major ranks of coal – ranks indicating the steps in the process of coalification of the plant debris. These are – anthracite with a carbon content of over 87%; bituminous with 77-87% carbon content; sub-bituminous with 77-87% carbon content and lignite with carbon content of 60-70%. Another rank of coal with carbon content less than 60% is called peat. As the carbon content decreases, the heating value falls. China and USA are the leading producers of coal in world followed by Australia and India. On the consumption front, China, US, Russia, India and Japan accounted for over 75% of worldwide coal consumption.

Coal is the biggest source of energy in India. As of April 1, 2018, the total estimated coal resources in the country were 3,19,020.33 million tonne as per “Indian Coal and Lignite Resources-2018” by the Geological Survey of India.  Major reserves are in Jharkhand (83.15 billion tonnes), Odisha (79.29 billion tonnes), Chhattisgarh (57.21 billion tonnes), West Bengal (31.67 billion tonnes) and Madhya Pradesh (27.99 billion tonnes). Major coal fields are – Talcher, Mand-Raigarh, Raniganj, Godavari, Jharia, North Karanpura, Rajmahal, Singrauli etc. According to the Ministry of Coal, production of coal amounted to 675.40 MT in 2017-18(Provisional) and 730.354 MT (Provisional) in 2018-19, with a positive growth was 8.1%. Coal India limited (CIL) is the biggest producer of coal in India whose contribution in production was 567.36 million tonnes during 2017-18 and 606.887 MT (Provisional) in 2018-19.

The HS code for coal is 2701, where 2701.11 is for Anthracite, 2701.12 for Bituminous coal, 2701.19 and 2701.20 for coking coal and others. As per the present import policy, coal can be freely imported into India.

Worldwide, Australia, Indonesia, Russia, USA and Colombia are the leading exporters of coal, accounting for nearly 80% of the total exports. These countries are also the leading exporters of bituminous coal. On the other hand, Japan, India, China, Korea and Taipei are the biggest importers of coal, and together account for 63% of global imports.

Source: ITC Trade Map, Values in US$ million

In the year 2018, India imported coal worth US$ 24,611.76 million while exports were recorded at just US$ 94.44 million. In quantity terms, 227.35 million tons of coal was imported into India in 2018, which was less than domestic production of 675.40 MT in 2017-18 (provisional) and 730.354 MT (provisional) in 2018-19. This indicates that imported coal is needed to meet the excess demand.

Primarily coal is used in production of electricity and in the Indian steel industry. This also points towards the heavy reliance on fossil fuels for energy generation – nearly 72%, when the government is stressing on alternative sources like solar energy. This is reflected in the observation that apparently, nearly 88% of India’s coal is non-coking grade (M/O coal) which is used in power generation and industries like cement, fertilizer, glass, ceramic, paper, chemical and brick manufacturing, and for other heating purposes. In fact,  77% of import quantities in 2018-19 (P) were of non-coking coal only.

Table 1: Top 5 importing partners of coal and types for India

2701 Coal		270119 Coal excluding anthracite and bituminous coal		270112 Bituminous coal
Value imported in 2018		Value imported in 2018		Value imported in 2018
World	24611.8	World	22652.8	World	1681.2
Australia	9,295.8	Australia	9,117.9	Indonesia	600.4
Indonesia	6,891.3	Indonesia	6,290.9	USA	429.4
South Africa	3,049.1	South Africa	2,774.9	South Africa	265.5
USA	2,063.9	USA	1,634.4	Australia	177.8
Canada	868.6	Canada	840.5	Russian Federation	124.5

Source: ITC Trade Map

Coal is one of the top 5 imported products annually and contributes nearly US$ 24 billion to India’s trade deficit in 2018. Recently, India allowed 100% FDI in coal mining and associated infrastructure under the automatic route. Given that out of more than 300 bn tons of reserves, not even 1% is being produced (only 730 million tons produced), easier norms for FDI would allow global players to enter Indian coal fields and boost the production. This seems in line with the government’s objective of achieving production of 1,500 million tons by 2022 to reduce import dependence. Thermal power capacity is expected to reach 290 GW by 2030 compared to 225 GW currently.

Entry of private players can help boost competitiveness as well as supply of coal to meet the domestic demand, besides bringing down prices. However, difficulties in land acquisition and environmental clearances for coal mining can have a detrimental impact on the government’s plans. Moreover the dominance of state-owned coal major Coal India, with economies of scale and huge production capacity of over 600 mt, can prove to be a major entry barrier for new players in the sector. So the eventual impact of this decision will only be seen in the upcoming 5-10 years.