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Coal Crisis in India: Causes and Ramifications

The scarcity of resources has remained a fundamental question since the beginning of time and the increasingly depleting non-renewable sources of energy has made the world ponder upon the issue more than ever. The current coal crisis in India stands as a testimony to the fact that the world needs to act responsibly in the use of this precious yet non-renewable resource of energy.

Coal is a pertinent fossil fuel in India and accounts for 55 percent of the country’s energy needs. India is the second-largest producer and consumer of coal in the country. It is also the second-largest importer due to the excessive consumption of coal in the country. Thermal Power comprises 70% of India’s installed capacity in power generation. The production of coal has been stagnating since 2018-19 but the Coal Crisis in India started surfacing in October last year which led to a stark reduction in supply resulting in an increased dependence on imports. The month of October saw long hours of power outages in the northern states of India due to the electricity deficit resulting from the crippling shortage of coal supply. The present quarter is expected to experience more shortages in the supply of coal than ever before.

The shortage of coal in India can be attributed to the escalation of the demand for power in the country accompanied by the dwindling imports as a result of the heightening of international prices of coal. The intensive lockdowns during the pandemic reduced the consumption of coal in the country but a sudden spurt in demand for coal due to the opening up of the Indian economy has led to a shortage of coal. The energy demand in 2022 increased to 132 billion units a month which could be attributed country’s industries as they pick up operations after the second wave of the coronavirus pandemic. The rising heat waves have also put pressure on the thermal power plants since the power demand crossed a record high of 201 GW in April 2022. The rise in Industrial Demand, International Price fluctuations, and the Russia- Ukraine war increased the price of imported coal worsening the situation at home since the domestic power plants started resorting to the domestic mines thereby increasing the pressure on those mines. The dependence on domestic production did not yield useful results due to the contraction of production as a result of excessive flooding in the coal mining areas of the country which also made coal transportation problematic.

India is experiencing numerous ramifications of its neck-deep dependence on coal. The coal shortage has disrupted power generation in multiple states including Punjab, Gujarat, Delhi, and Tamil Nadu. The reductions in imports have put immense pressure on the domestic producers of coal leading to a shortage in the stock of coal in India resulting in continuous power outages and blackouts. The coal shortage has not only affected households but has also threatened operations of the industrial sector in India. The hike in the prices of coal has made it difficult to run businesses since industries like steel are operating at four times more than their normal cost. The increased costs further reduced the consumption expenditure leading to an everlasting impact on the entire economy. The rise in the operating costs of the industries would compel the MSMEs to close down since they would not be able to break even in the light of the current scenario leading to major employment losses in the Indian Economy.

The Indian subcontinent is on its path of strong economic growth having an increased need for energy. The government is taking various efforts to tackle the current crisis in the form of reducing dependence on coal and enhancing the use of low-cost renewable energy. It also needs to provide more opportunities for diversification in the energy mix which becomes critical in times of persistent coal shortages. The only way for India to tide over the current crisis is to ramp up production from renewables and upgrade the existing infrastructure so as to ramp up production and increase supplies. Mining blocks can also be allocated to the private sector in order to ensure efficiency in production. Further, India needs to reduce its dependence on coal so as to fulfill its goals of enhancing the use of alternative sources of energy which would be in consonance with India’s international commitments as well.

Chahat Mahajan

Junior Analyst at CPRG India