India's Growth Outlook – Part Two: Coal

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TC Malhotra contributes to MetalMiner from New Delhi. This is Part Two of a two-part series. Read Part One here.

Domestic steel producers are also facing challenge with the shortage of coal supply.

The Indian coal industry is the fourth largest in terms of coal reserves and third largest in terms of coal production in the world. But despite its huge resource base, India is still struggling to minimize its coal deficit.

Coal is in heavy demand by power producers, steel mills and cement manufacturers. Demand has increased significantly with the commissioning of new coal-fired generation capacity. Given India’s chronic power deficit, this trend is likely to continue.

Ratings agency Fitch notes that coal will remain the dominant fuel for the Indian power sector. Coal accounted for 54 percent of total power capacity at the end of April 2011 and 66 percent of total electricity generated in FY11. Fitch believes that both the Indian government and the coal industry will need to take action to mitigate the near-term coal availability and price risks.

The federal government recently admitted that the country will face a huge shortfall of 269 million tons of coal by 2021-22, as the coal-producing entities have failed to keep pace with the demand as well as economic growth.

Indian Coal Minister Sriprakash Jaiswal recently said in the lower house of the parliament that in the last eight to 10 years, the economy grew at a much faster pace compared to coal production, even as the Coal India Limited registered a growth of 7-8 percent. The company is trying to adopt different technologies that are more efficient in coal usage to meet the demand, Jaiswal said.

Estimated demand for coal in 2021-22 is projected at 1,353 million tons against the production assessment at 1,084 million tons, leaving a shortfall of 269 million tons.

India needs more electricity in the coming year to maintain its economic growth because of the power needed to run steel mills and other important industries. India aims to generate at least 400,000 MW of power by 2030 through coal-fired power plants. Hence the necessity of the mineral cannot be emphasized enough.

Experts believe India’s economy, the third largest in the world, in terms of purchasing power, is going to touch new heights in coming years.

As predicted by Goldman Sachs, by 2035 India would be the third largest economy of the world just after US and China. It will grow to 60 percent of the size of the US economy. Today’s booming Indian economy has to pass through many phases before it can achieve the current milestone of 9 percent GDP growth.

The International Monetary Fund also said that the fastest growth in recent years has come from emerging markets like China, Brazil and India, which helped offset the deep downturns in the United States and other rich nations touched off by burst housing bubbles.

The IMF maintained its forecasts for global growth for both 2011 and 2012 at 4.4 percent and 4.5 percent, respectively, saying the global recovery was strengthening even though downside risks have risen. China was expected to lead the way with growth of 9.6 percent this year, followed by India’s economy, which was projected to expand by 8.2 percent.

Experts believe that Standard & Poor’s downgrading of the US government’s credit rating from the top level AAA to the AA+ category may impact the Indian IT, and jewelry industries, but, needless to say, that will have no impact on Indian steel industry growth.

–TC Malhotra

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