Coal Imports: A Policy-Made Problem, Not a Resource Constraint
Coal mining in India! (Image Coal India)
India’s Coal Expenditure Woes: Widening Deficits, Rupee Pressure, and Lost Renewable Opportunities
By P. SESH KUMAR
NEW DELHI, June 21, 2025 – In the ongoing debates around India’s energy security, a common refrain among policymakers and industry voices is that coal imports are a technical necessity and not a structural flaw. However, this narrative deserves closer scrutiny. On deeper analysis, it becomes evident that India’s persistent reliance on coal imports—despite record domestic production—is not a resource-driven inevitability, but a consequence of planning failures, policy misalignments, and systemic inefficiencies.
Misplaced Optimism on Import Trends
Much has been made of India’s rising domestic coal production—from about 612 million tonnes (MT) in FY14 to over 997 MT in FY24, a robust 63% increase. Yet, this growth narrative is used to suggest that imports are either declining or inconsequential. That is simply not the case.
Coal imports have not stagnated; they remain structurally entrenched. From 166 MT in FY14, imports peaked at 248 MT in FY20. After a brief pandemic-induced dip, they bounced back to around 243.6 MT in FY25—just shy of the all-time high. The problem, therefore, is not one of import growth, but one of import persistence.
Even at peak domestic output, imports still make up around 20% of total coal consumption. This points to a deeper malaise—an enduring misalignment between domestic supply and actual consumption patterns, often driven by logistics, pricing, or infrastructure bottlenecks.
The ICB Argument: Incomplete and Overused
The go-to justification for coal imports is the existence of imported coal-based (ICB) power plants. Many of these, such as Tata Mundra or Adani Mundra, were designed with low-ash imported coal in mind, and indeed, around 17 such plants with ~17 GW capacity fall into this category.
However, this doesn’t explain why blending of imported coal continues even in plants built for domestic coal. During the coal shortages of 2021–2023, the Ministry of Power explicitly directed domestic coal-based (DCB) plants to blend 4–10% imported coal, irrespective of boiler design.
NTPC, DVC, and several state electricity boards complied—not because of technical need, but because of failures in stock planning, rail logistics, and advance contracting. In FY23 alone, power plants imported over 35 MT of coal for blending. Meanwhile, plants like Tata Mundra have explored domestic blending of up to 15%, indicating that technical retrofits or substitutions are indeed possible but haven’t been incentivized or institutionalized.
The Forex Drain: No, It’s Not ‘Peanuts’
Some have gone so far as to dismiss the forex burden of coal imports as negligible—“peanuts,” in their words. That characterization does not hold up under any economic scrutiny.
Between FY14 and FY24, India spent over $110 billion on coal imports. Of this, around $45–50 billion was on non-coking coal alone. In FY24, non-coking coal imports accounted for nearly $20 billion—placing them among the top five items in the import bill.
This expenditure has real macroeconomic implications: it widens the current account deficit, puts downward pressure on the rupee, and siphons off capital that could have gone into renewables or infrastructure upgrades.
ICB Plants and the Hidden Fiscal Costs
Another popular argument is that ICB plants operate at low Plant Load Factors (PLFs) and lack long-term Power Purchase Agreements (PPAs), which limits their ability to pass on fuel costs. While this may be factually accurate, it does not negate the fiscal burden their operation creates during crises.
In 2022, amid a power crunch, the government invoked Section 11 of the Electricity Act to compel ICB plants to run at full capacity. To offset the difference between the cost of imported coal and prevailing tariffs, states like Gujarat, Maharashtra, and Haryana offered tariff top-ups or subsidies.
Effectively, the public bore the cost—either directly through higher tariffs or indirectly via taxpayer-funded subsidies. This kind of reactive policymaking is both fiscally unsustainable and structurally flawed.
Yes, the CAG Has a Role—A Constitutional One
Some voices have even questioned whether the Comptroller and Auditor General (CAG) has jurisdiction over coal imports, especially when private players are involved. This is a baffling and dangerously reductive view.
The CAG has a constitutional mandate to audit all receipts and expenditures of the Union and State governments. This includes examining tariff subsidies, directives that influence coal imports, and government interventions during energy crises.
Moreover, when private companies receive statutory directives, compensation, or access to public infrastructure, the CAG is well within its rights to assess the policy’s fiscal prudence. Precedents include its audits of coal block allocations (2012), Ultra Mega Power Projects (2015), and power distribution schemes (2020).
A Call for Accountability and Coherence
What we’re confronting is not a geological shortfall, but a policy failure. India sits atop some of the world’s largest coal reserves yet continues to import large volumes of coal due to poor logistics, distorted pricing signals, and planning gaps.
The solution is not to rationalize or downplay imports, but to question the policy design that enables them. This includes:
- Fixing freight pricing distortions that make imported coal appear more cost-effective.
- Strengthening stock planning and rail logistics.
- Mandating and subsidizing coal washing for quality parity.
- Incentivizing retrofits for domestic coal usage in ICB plants.
- And yes, empowering institutions like the CAG to examine these issues holistically.
Until these structural inefficiencies are addressed, India will continue paying a premium—for a resource it already has, buried beneath its own soil.
The Great Coal Import Conundrum Amid Deafening Silence of CAG
(P. Sesh Kumar is an independent policy analyst and former bureaucrat with extensive experience in regulatory and public sector audits. Views are personal.)
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