India promised on Monday to open up the coal industry to private players and moved closer to selling a stake in a state-run oil company, as Prime Minister Narendra Modi picked up the pace on economic reform days after relaxing fuel price controls. Using an executive order, the cabinet agreed to allow private Indian companies to mine and sell coal at an unspecified future date, Finance Minister Arun Jaitley said. That sets the stage for the biggest liberalisation of the industry in more than 40 years.
The ruling party's success in two state elections last week capped several days of action on the economic front and has given Modi more room to cut through a thicket of regulations and state controls he says holds back Asia's third-largest economy. "Reform is the art of the possible," Jaitley earlier told TV network ET Now, hinting that more was to come. "In the first year, when people expect lot of reforms and there is lot of popular support behind the reform process, it is more easily possible.
Modi was elected in May on promises he would create jobs and rejuvenate the Indian economy, but investors and economists were disappointed by his first budget and a lack of early progress on fixing structural economic problems. In the last week, he has gone some way towards quelling those concerns, putting in a reform-minded team at the finance ministry that includes prominent economist Arvind Subramanian to help formulate the budget and policy.
The economy is showing some signs of revival and inflation has plummeted, aided largely by a drop in global oil prices. On Saturday, the cabinet freed diesel pricing of government intervention and raised the price the government pays producers of natural gas by a third to $5.61 per mmBtu. Modi also begun an overhaul of creaky labour rules, cutting the power of labour inspectors and slashing the red tape for small companies that makes India one of the toughest places in the world to do business.
Indian shares, bonds and rupee currency all performed strongly on Monday in response to the new economic policies and the victories by Modi's Bharatiya Janata Party (BJP) in the states of Maharashtra and Haryana. Former Prime Minister Indira Gandhi nationalised the coal industry in 1972, creating one of the world's largest mining companies, state-run Coal India. The system was intended to provide steady supplies of fuel and help industrialisation, but Coal India is now deeply dysfunctional. Most of India's electricity is generated by coal, but long power cuts are the norm in much of the country, which has the world's fifth-largest coal reserves but is the world's third largest importer.
As of Wednesday, 64 out of 103 power stations had coal for less than a week, mainly due to a shortfall in supplies from Coal India, according to the power ministry. "This would lead to an optimum utilisation of the national resource," Jaitley told reporters, adding that there was no move to fully privatise Coal India. However, the government does plan to sell 10 percent of its majority holding in the inefficient behemoth, which is plagued by corruption. Unions oppose the sale.
The Supreme Court last month scrapped the licenses for 214 coal fields that supplied power, cement and other companies over allegations of graft. Monday's decision to liberalise the coal industry was tacked onto an executive order to allow the auction of the scrapped coal fields.
Under Indian law, the executive order, known as an ordinance, takes immediate effect but must be approved by parliament within a few months. Modi's government will have to win cross-party support for its plan, since it does not have a majority in the upper house of parliament. On Monday, the administration's top privatisation official met bankers on in the financial capital, Mumbai, to discuss the sale of a 5 percent stake ONGC, a top finance ministry official said. Shares in ONGC, the second-largest listed firm in India by market value, gained 5.6 percent on Monday. The government has a stake of 68.94 percent in the company, which has shares of in oil and gas fields across the globe.
Comments
Comments are closed.