Tuesday, July 31, 2012

Stratagem-INTERNATIONAL

In the case of Apple, however, the opposite seems to be happening. Apple is finding ways to add its own flavour to a host of technologies through its vertical integration strategy and is using this to produce the differentiated products that we all love. One of its advantages is in its shorter lead-times, which are enabled by not having to talk to all sorts of suppliers before getting things done. Another advantage is its ability to design products containing its own components, a classical vertical integration strategy. This helps Apple turn received wisdom on its head. Google now appears to be trying to take a leaf out of Apple’s book by becoming more vertically integrated. Will it succeed?

This is a difficult call. But several arguments weigh against Google’s decision. First, Google is effectively following the herd (Apple) here. Playing a game of catch-up is always difficult, and particularly so when the firm you are trying to catch up with is as successful as Apple. Second, it is not clear Google can be a successful manufacturer of mobile devices. Unlike Apple, it lacks any background or experience in the production of goods and thus has not been able to build up the capabilities needed to be successful in that game. Firms, which outsource, need to have sufficient capabilities to monitor and manage their suppliers effectively. But firms, which vertically integrate activities, need a strong ability to undertake the activities on top of this. If they do not have this, they might be better off outsourcing the activities. Third, one way or the other, by becoming a hardware producer Google will start to compete with the other users of its Android mobile operating system, such as Samsung and HTC. It is difficult to see how that can make everybody happy at the same time, particularly if growth rates in the smartphone segment start to decrease, as they inevitably will, and Android manufacturers start to compete harder.

Finally, it is not clear whether there will be any consumer response to Google’s new strategy. Are consumers happy to buy a mobile device from a firm which already holds much of their data? With pockets as deep as Google’s you can probably afford a gamble financially, and the Motorola takeover will also give Google an interesting addition to its patent portfolio, but there is a downside to this particular deal that Google will hope does not materialise. If it does, outsourcing might have been better than vertical integration after all.


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Monday, July 30, 2012

Is the hype being built about Iran’s supposed nuke ambitions even real?

Be it through murders, Kidnapping, Virus attacks or sanctions, a careful and well coordinated stealth Programme is on to Jeopardise years of nuclear capability building by Iran. Is the US, along with its allies, drawing itself into another long drawn misdirected war? Is the hype being built about Iran’s supposed nuke ambitions even real?

UN (on December 23, 2006) banned the supply of nuclear-related materials and technology and froze the assets of key individuals and companies related to Iran’s nuclear program. On March 24, 2007, UN imposed an arms embargo and expanded the freeze on Iranian assets, which on March 3, 2008, was further extended to the activities of Iranian banks, aircraft and movement of individuals through their territory. The recent sanctions passed by EU (June 17, 2011) on Iran involve the prohibition of investments by EU countries in oil and gas projects, as well as the transfer of technology and equipment. The Obama administration has further imposed new sanctions (June 24, 2011) against Iran’s largest air carrier accusing it of supporting terrorism and nuclear activities.

Yet, there is no hard evidence that IAEA or the US has been able to present to the global community. There has been a lot of hype, statements and political posturing. But evidence (of Iran attempting to divert nuclear resources for weapons), as in the Iraqi misadventure, none! Pulitzer Prize winner Seymour Hersh wrote in The New Yorker in June 2011 that “the two most recent US National Intelligence Estimates on Iranian nuclear progress have stated that there is no conclusive evidence that Iran has made any effort to build the bomb since 2003.” Similar is the tune of former director general of IAEA and Noble Prize winner Mohamed ElBaradei, who said recently, “I don’t believe Iran is a clear and present danger. All I see is the hype about the threat posed by Iran.” Then why are the US and other agencies still bent on misrepresenting and perhaps even sabotaging Iranian nuclear ambitions?

The US fears that once a country like Iran has acquired nuclear know-how, to consider it to follow the Japanese path in rejecting nuclear weapon ambitions, would be both churlish and childish. The US believes that if not now, Iran will go ahead and arm itself with nuclear weapons in the future. The only way America thinks it would be able to move against future Iranian ambitions is to sabotage Iran’s currently peaceful nuclear energy generation attempts. This, combined with the false media hype about Iran attempting nuclear weaponization, would be enough for the US to force the UN to put a complete stop to Iran’s nuclear energy generation programme. In other words, expect very soon that the UN would move a resolution to this effect. Like we mentioned, Iraq redux!




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Saturday, July 28, 2012

@Townhall – Road to term II

@Townhall is a Novel Obama initiative that deserves to be emulated by Global Leaders for greater transparency and reach

“When we sacrifice our commitment to education, we’re sacrificing our future. We can’t let that happen. Our kids deserve better,” tweeted President Barack Obama. @Townhall may seem just another twitter account to most readers but clearly, it’s much more. @townhall is the “official account for Twitter hosted town halls.” In other words, the forum which political heads can employ to directly engage their electorate. And the first politician to take up this opportunity? Barack Obama but of course, who, on July 6, 2011, invited and answered varied questions from mostly American audiences, and that too live.

This initiative of reaching out is not only novel and historical but also redefines the concept of “democracy.” Of course, the launch of such an interface is accurately in sync with the initial 2012 election campaign plans of Obama – so one might suspect that Twitter is clearly aligning with the Democrats. But giving them the benefit of doubt, the fact is that till date, it has only been Obama who has been so proactive amongst almost all global leaders in directly engaging his citizens. Another of his team’s initiatives, the WhiteHouse 2.0 campaign that was started two years ago, also talks about a similar initiative wherein all significant social networking sites are used as tools to reach bigger audiences.

When Obama reportedly met CEOs of Twitter (May 2011) and Facebook (April, 2011), it was evidently to plan the future of his online campaign, which now seems be gaining a larger than imaginable proportion. Heads of State around the world, and even those planning to be Obama’s opponents in the coming Presidential elections, need to at least learn these few lessons from Obama, as merely opening a Twitter or Facebook account does not really further one’s cause.


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Friday, July 27, 2012

“More Regulation will have a Negative Fallout”

P. K. Mukherjee, MD, sesa Goa talks to Virat Bahri on The Company’s outlook post The Lifting of The Export ban and The Sfio Report

B&E: FY 2010-11 was an year where you dealt with relatively low iron ore realizations. In the light of that fact, what is your perspective on the results? Also, what are your expectations with respect to when these realizations will improve in the coming time?
PKM: Iron ore realization were good but volume was relatively low. The ban on export of Karnataka ore and even the procedural bottlenecks for moving ore for domestic consumption outside the state, extended monsoon in Goa along with transport time restrictions are the major reasons that came in the way of volume growth. Dispatch of quantities more than EC permissions done by some mine owners (particularly south Goa) that further restricted iron ore movement and the unprecedented increase in road freight in Goa were other challenges. Otherwise, we are quite confident of market being quite buoyant and expect price realizations to be range bound.

B&E: What major transformations have been done post the company’s acquisition by the Vedanta Group? What were the managerial and business related challenges and how did you overcome them?
PKM: Vedanta group acquired SESA in 2007 and then DEMPO acquisition came in 2009. Volume has doubled during this period. Strong Management Information Systems including motivation/push for operational excellence and more empowerment of executives with career growth opportunities for younger generations are few areas of transformation. We also challenge our own benchmarks continuously. The thrust is on continuous growth with sustainability.

B&E: Investors would be waiting for the time when you will be able to finally move towards steel production and export. What is your perspective on the same?
PKM: If the Indian steel industry can consume all the grades of iron ore as exported, miners would be only happy to sell it to them at market determined price. Exports of iron ore from India were never done by design but only because the miners in India were not left with any choice. As far as coming into steel production is concerned, well, it would come at its own time.

B&E: How critical is the lifting of the export ban from iron ore in Karnataka to your business?
PKM: The amount of iron ore produced in our Karnataka iron ore mine hasn’t got enough demand in domestic market; leave alone the issue of market determined price. Hence, growth of our Karnataka volume (as per environmental permissions) is critically dependent on effective lifting of the ban with the seamless issue of all permits required legally. 


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Thursday, July 26, 2012

Is Honda Losing Steam?

Failure to Refresh its Offerings has Cost Honda dear, which has Lost Sales and its Leadership Position in The Executive and Premium Cars.

After the earthquake and tsunami ravaged Japan on March 11, the loss to the country has been beyond thousands of innocent lives. The Fukushima nuclear crisis triggered a loss of 1.25 trillion yen ($15 billion), forcing the exit of Masataka Shimizu as the President of Tokyo Electric Power Co., Sony Corporation faces a loss of a possible $3.2-billion in the just-ended fiscal and Japanese automakers have announced production cuts that is certain to bleed their bottom lines. Indeed, the past few months have proved to be one of the worst in the history of Japanese business. Out of all, the Japanese automobile industry, famous the world over for its just-in-time manufacturing, has been one of the worst hit. While Toyota lost its numero uno position as the world’s biggest seller of cars to GM — it sold 1.79 million vehicles worldwide in the first three months of the year (down 12% from the first quarter of 2010) as compared to GM’s 2.22 million — Honda was struggling to keep its business together in many major markets, including India.

Honda’s Indian arm, Honda SIEL, sold 1,990 units in the month of April 2011 logging a negative growth of 43% as compared to 3,507 units sold in the corresponding period in 2010. Following in the footsteps of its Japanese peers, Honda also announced a production cut in the Indian market necessitated by the limited availability of critical auto components from Japan. It was Toyota, which first announced a 70% cut in production. Honda followed with a 50% cut in production as both companies depend hugely on the imports of critical components like transmission systems and engines. Honda produced 3,530 cars in the month of April 2011 with a negative growth of 6.2% as compared to 3,767 units produced in the same period in 2010.

However, for Honda SIEL, the bad news is not limited to only the adverse impact on its supply chain due to the natural calamity in Japan. In fact, it also continues to lose ground to the competition in India. Much before the natural tragedy struck Japan, Honda’s Civic and Accord models had already lost their leadership positions in the executive and premium sedan segments to Toyota Corolla and Skoda Superb respectively. For the month of April 2011, Civic sold 253 units as compared to 776 units sold by Corolla. The situation for Accord is slightly better as it is still the second-largest selling car in its segment. Honda sold 194 units of Accord in April 2011 and trails behind Skoda Superb, which sold 243 units in the same period.

The current sales situation is a matter of concern for Honda which, after having established its presence in the sedan segment during 16 years of its existence in the Indian market, is now seeing its dominant position slip away to rivals. Its experiments in the hatchback and SUV segments have not been able to fetch high volumes for the company. Its hatchback Jazz failed to excite consumers, largely because of the hefty price tag as compared to the competition, which offered similar benefits at a lower price point. Honda sold 4,862 units of the Jazz in FY 2010-11 while relatively new products like Volkswagen Polo and Nissan Micra sold 28,904 and 12,302 units respectively. Similarly, CR-V, with its petrol only variant on offer, was not able to attract consumers for long amidst the rising competition in the SUV segment. The 22 units of CR-V sold by Honda in the month of April 2011 was worth peanuts as compared to 739 units sold by the segment leader, Toyota Fortuner.


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Wednesday, July 25, 2012

Following The Parent to International Markets

Increased Penetration into Financing of CVs, Construction Equipments and Pre-Owned Vehicles has Rounded off a great year for M&M Financial, even as The Recent RBI ruling played Spoilsport. Now, The Company wants to take its Portfolio very Aggressively into The Global Market.

Setting up an NBFC that caters to rural and semi-urban financing was a perfect foil to the tractor business of the Mahindra & Mahindra group. But as Vice Chairman & MD Anand Mahindra would be realising, achieving synergy with government objectives may be a tougher task call at times.

Reserve Bank of India’s (RBI’s) recent credit policy announcement in India that any bank lending to NBFC will not be classified as priority sector lending, does have a material impact on the operations of Mahindra & Mahindra Financial Services Ltd (MMFSL), affecting their cost of picking loans by upto 70-80 basis points. This is despite the fact that MMFSL gets bank loans, which are classified as priority and lends for tractors and commercial vehicles. Currently, around 22% of MMFSL’s lending comes under the purview of the priority sector.

On the strategic front, though, the company is doing extremely well. The company has managed assets worth $3 billion by the end of FY 2010-11. During the fiscal 2010-11, it reported net profit of Rs.4.63 billion, a growth of 35% yoy. The results were buoyed by an increaase in the bank’s loan book by 62% yoy to Rs.144.2 billion for the fiscal. With mcap growth of 123.65% for the fiscal, M&M Financial ranks 9th in B&E’s list of India’s greatest wealth creators in terms of market share growth in terms of percentage. Ramesh Iyer, MD, M&M Financial Services, comments, “In the financial year FY 2010-11, we have enhanced our focus towards financing of commercial vehicles, construction equipments, as well as, pre-owned vehicles.”

Meanwhile, the company is already looking to go global even as it endeavours to seek clarification on RBI’s ruling. After commencing operations in US, the company is now planning to take its portfolio to South Korea, South Africa and China. As expected, these are countries where the group already has established businesses. South Korea is expected to provide new opportunities in auto finance whereas China would be a hub for tractor financing. In South Africa, M&M is targetting finance opportunities for both commercial vehicles and tractors. As of now, the company is studying the business as well as policy environment of these markets. Earlier in the year, the company entered into a joint-venture with De Lage Landen Financial Services (subsidiary of Rabo Bank) to provide finance to US-based tractor dealers. In South Korea too, MMFSL would be looking to leverage the network of Ssangyong Motors, Iyer said. In China, M&M is present through two joint ventures to manufacture tractors suited to Chinese farming conditions and practices. In South Africa, the automobile company sells all its major products.


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Tuesday, July 24, 2012

Stratagem-GOVERNANCE:2G PROBE

With both The Joint Parliamentary Committee and The Public Accounts Committee now Investigating The Infamous 2G Spectrum scam, a fresh dispute over The Scope and Jurisdiction of The Committees could hamper the very Idea of Initiating a probe into The Biggest loot that India had Ever Seen. 

Also, the JPC or the PAC can only look at the documents and examine ministry officials who testify before the committee. The parliamentary committees can arrive at independent conclusions based on documents placed before them and members of the committee can only place dissent notes if they do not agree with the majority. Furthermore, prosecution of individuals and cancellation of licences are executive functions which can only be initiated by the government. A JPC report can recommend the prosecution of a particular person or the cancellation of certain licences. However, the government can always disagree with the JPC’s findings and refuse to take action.

In another development, in a letter addressed to the JPC members before it met on March 24, JPC chairman Chacko asked them to intimate any pecuniary or other interest on subjects to be enquired by the committee. Chacko’s letter follows reports that some Congress members had raised questions on the tenability of the presence of 2 former BJP Ministers, Yashwant Sinha and Jaswant Singh, in the committee. As the Finance minister in the Atal Bihari Vajpayee government, Sinha presided over the Group of Ministers (GoM), which went into the issue of fixed-service providers being allowed limited mobility.

Jaswant Singh was a member of the group. Congress has asked how the two would be able to judge the decisions that may have been taken by the GoMs of which they were a part. The BJP, however, has questioned the rationale of the members of the Congress on the ground that they had no ‘personal’ conflict of interest on the mentioned telecom related issues.

The issues of accountability, transparency & governance are huge concerns for the UPA government. With the probe now extending to the tenure of the NDA government as well, we wonder whether the findings of both these committees, set up to investigate the scam in detail, will only be a cover up or not.


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Friday, July 20, 2012

Accept or Reject without a Reason

The Term “Accept or Reject without a Reason” Is The most Misused term across Government contracts – and for Shamefully Corrupt Purposes

Without even one iota of doubt, there is an urgent need for the government or the judiciary to pass strictures against this clause and ensure that the power to accept or reject contracts is via transparent means and not through unilaterally decided arbitrary decisions that cannot even be questioned at a later date. Just look at the putrefied list of our gloriously corrupt government representatives and you start understanding why this clause has become a debauched, unethical entity.

AICTE’s Chairman R. A. Yadav was suspended in 2009 under a corruption case, while AICTE member secretary K. Naryan Rao was even arrested. In the same year, former Jharkhand chief minister Madhu Koda was arrested in a case of disproportionate assets. Ramachandran Nair, CEO, LIC Housing Finance was arrested in 2010, again on charges of bribery charges. A. K. Srivastava, CMD, Nalco was arrested in February 2011, of course, on bribery charges. Secretary General of CWG organising committee Lalit Bhanot, former telecom minister A. Raja, and more, the list simply does not seem to stop.

Our proposed solution to resolve corruption by getting rid of the clause, obviously sounds too simplistic by itself. But wonderfully, the most complicated problems in the world have had quite simple solutions. With the government running away from owning up to the issue, it’s obviously the judiciary that has to get working. Well, we guess even the judiciary has to clean up its house first of all. The Tis Hazari Courts, in their tender for purchasing aerosol insecticide, writes, “The Purchase Committee reserves the right to accept or reject any tender without assigning any reason whatsoever.” Way to go judiciary, way to go!


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Thursday, July 19, 2012

If The Oracles were to be True...

Goldman Sachs Economists have cautioned The World against investing in India in The Short-Term. With high Inflation and Record current account Deficit, has Indian Economy Deteriorated so much?

IIn the summer of 2007, when the subprime crisis was yet to unravel and the world was still living with a happy boom mindset, two effervescent traders from Goldman Sachs, Michael Swenson and Josh Birnbaum, noticed something really strange going on in the global securities market. Whatever they saw, was enough for them to immediately call up their headquarters to urgently request the bank to short its mortgage-related securities. For a bank to take such a huge step based on the advice of just a handful of traders is rare; but not in Goldman, which puts its pound of flesh directly into the hands of its front line bankers. Goldman followed the duo’s advice to the tee. And the result – Goldman made a whopping $11.6 billion profit in the financial year 2007 with $4 billion emerging from its bet on the subprime collapse.

Three to four years down the line, Goldman Sachs again seems to be standing on a similar platform with another equally effervescent quasi-economist, their Asia-Pacific Chief Strategist Timothy Moe, putting forth another radical outlook. Leading a team of the bank’s strategists, and sitting plum in his ubér plush office at 85 Broad Street, New York, Tim portends that the bank is not going to be “tactically positive” on BRIC economies and that the “longer-term picture of Asia outperforming the US is taking a breather.” When Goldman Sachs’ strategists mention terms like “not tactically positive”, that is equivalent to “the nukes have exploded” in common parlance. More worrying from an Indian perspective, Tim has pointed out that India is a bigger issue for investors than China; and that both these nations would and should see a lower preference from investors than even nations like Singapore, Taiwan or South Korea. The problem is, when Goldman economists take out a forecast, the resulting melee is much like the who-came-first-the-chicken-or-the-egg situation. It doesn’t matter whether their forecast comes out correct; what would necessarily happen is that billions of dollars would see market shifts out of these two nations.

Lynch mob criticism aside, India itself has much to blame itself on. Owing to a resurgence in the wholesale price index for food articles (2.5% for the week ended on December 25, 2010), inflation has again hit the headlines in the country. Yet, beating worst of the expectations, year-on-year growth in over all WPI in India accelerated from 7.5% in November 2010 to 8.4% in December. Though a mind-boggling 70% rise in onion price and surging fuel prices were blamed to be the key reasons for the December inflation, there is no denying that the country has already been facing some of the strongest inflation in the Asia-Pacific region as surging output and soaring demand bump up against capacity and other constraints, fanning price pressures. RBI is certainly on its mis-foot toes to curb the pressure by clearly wrongly resorting to tightening of monetary policy.


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Wednesday, July 18, 2012

Nordic brings back the old ghosts

Tighter Monetary Policy has not only Weakened Domestic demand in Nordic’s biggest Economies, but has also put a Brake on Region’s overall Growth Momentum. Is Nordic slipping back into recession?

Several investors in western Europe, particularly in the Nordic region (comprising countries like Sweden, Denmark, Norway, Finland, et al), are busy rejigging their portfolios these days. Raison d’être: Ghosts of a double-dip recession, which had disappeared as green shoots of recovery started popping up, have once again started haunting the region.

Tighter monetary policy has not only weakened domestic demand in the region’s two biggest economies, Norway and Sweden, but has also put a brake on Nordic’s overall growth momentum. While Norway’s real GDP contracted by 0.5% during Q1 2010, Finland too remained in a full-blown recession in H1 2010 (Finland’s GDP contracted by 5.4% in Q4 2009 and by 0.6% in Q1 2010) as firms pulled back fixed investment spending on the back of falling export demand. Even Sweden’s economy, which was the first to rebound in 2009, has lost its winning momentum. GDP growth in Sweden is expected to slow down from 4.2% in Q2 2010 to 2.1% in Q3 2010. What’s more? Unemployment has also risen in Denmark (from 3.9% in Q3 2009 to 4.3% in Q1 2010) and Norway (from 3.2% in Q3 2009 to 3.5% in Q1 2010) while staying at record-high levels in Finland (at 8.8%). So, is Nordic slipping back into recession or is it just a halt before the growth finally picks up in the region?

Though Eszter Miltenyi, Senior Press Officer at European Central Bank finds an excuse to get away from bringing in the real picture of the region by saying to B&E, “We do not comment on particular countries’ economies of the euro zone,” there are still many who are bold enough to speak the truth. “The region will tip back into a shallow recession in early 2011. Growth momentum will fade as the recovery stalls in key trading partners. Although Denmark, Finland & Sweden have strong trade links with each other, most of their trade flows outside the region to Germany, US and UK. And as Germany and UK are expected to see mild recessions in the first half of 2011, things would really weigh heavy on the Nordic region’s exports,” Christine Li, the London based economist at Moody’s Economy.com tells B&E.

Further, if Europe’s sovereign debt crisis deepens, the demand from Nordic’s trading partners could suffer longer than expected. Dismal economic news from US and western Europe too implies that the global recovery continues to be fragile and growth remains inconsistent. This means a lot more trouble is on its way for Nordic countries in the near future. No doubt, public finance was strong across the Nordic when it entered the 2008 financial crisis, but the situation has changed today with the region’s major economies like Denmark, Sweden and Finland struggling with massive budget deficits. But then, are policy makers really aware of the financial storm that might hit them anytime soon? If yes, what are they doing to avert the danger?



 
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Tuesday, July 17, 2012

The first real test for Congress after the Anna Hazare movement

There is already a buzz around as Hisar district in Haryana goes to poll on October 13. As speculations mount over who will fill in the shoes of Late Bhajan Lal, these by-elections will be the first real test for Congress after the Anna Hazare movement. 

As optimistic and relaxed as he may sound, the going is unlikely to be easy for the Congress on this seat, even history vows for the same. The party has won the Hisar seat only five of the 12 times in the Lok Sabha elections held in the state. Congress candidate and former MP Jai Prakash has won the seat three times, in 1989, 1996 and 2004, with tickets from the Janata Dal, Haryana Vikas Party and Congress tickets respectively. In the last Lok Sabha elections, Jai Parkash had to be contended with the third spot in the ballot tussle won by Bhajan Lal. Even otherwise, Hooda needs to prove that his government is popular after having come to power in the October 2009 Assembly elections backed by the support of independent legislators.

In the May 2009 elections, Bhajan Lal had won the Hisar Lok Sabha seat as a Haryana Janhit Congress (HJC) candidate by a margin of about 7,000 votes, beating the Indian National Lok Dal (INLD) and the ruling Congress nominees. This time around, the stakes for the three main players on the Hisar seat – the Congress, INLD and the HJC-BJP combine – are high as all parties are fielding their stalwarts who shall now try to fit into Bhajan Lal’s shoes. The seriousness of the contest can be gauged from the very fact that the main opposition INLD has announced the name of its leader Ajay Singh Chautala for the by-poll. Chautala, the son of former Chief Minister and INLD supremo Om Prakash Chautala, is a sitting legislator in the state. For HJC, & its new candidate for the seat – Kuldeep Bishnoi (who has been supported by the BJP) – the stakes are high – not only politically, but on a personal front as well. Bishnoi would definitely want to win this by-poll and retain the party’s hold over the area. However, his drawback is the fact that, it will be his first election without his mastermind father – his character will also be tested thoroughly.

If the HJC-BJP candidate Kuldeep Bishnoi defeats Ajay Singh Chautala of the INLD and Congress candidate Jai Prakash, the alliance would be cemented firmly for the 2014 Lok Sabha elections and the subsequent assembly polls in the state. In a way, the Hisar Lok Sabha by-election could well be an indication of the new change in state politics.

More than anything else, the Hisar polls are only a beginning of the test that Congress has to face in coming times. With elections approaching in Uttar Pradesh, Uttarakhand and Punjab within the next one year, the possibility of Hisar results reflecting upon the subsequent verdicts too cannot be totally ruled out.


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Monday, July 16, 2012

Is there an alternative?

To meet the growing demand of electricity in the country, the approach paper of 12th Five year Plan (2012-2017) targets to set up 100 GW of capacity. However, if the government wants to achieve this desired growth, it certainly needs to undertake immediate reforms to augment domestic coal supply.

At a time when over 50% of the country’s energy demands are met by coal, India is still struggling with issues related to its production and supply. Every year, the Planning Commission comes out with an estimated target of coal production and, interestingly, every year the figure is scaled down considerably. Even the final output lies nowhere near the revised estimates. What’s more? Coal or black gold, as it is often called, is about to become dearer and the ramifications are certainly going to be felt all around. The reason is simple. A risk of shortfall in production targets, the proposed pay revision in the sector, and an increased share of washed coal may put an upward pressure on coal prices and place energy companies at the losing end.

When it comes to a change in policy regime, there have been visible attempts to liberalise the statutory & regulatory framework in order to promote investment in the coal sector. These policy initiatives have come in the form of allowing captive mining by power, steel & cement industries; allowing foreign direct investment (FDI) of 100% for the power sector, 74% for the steel, cement & coal washing; creating a competitive market for sale of coal; progressive reduction of customs duty on coal & the import of Heavy Earth Moving Machinery (HEMM); and the introduction of contract mining. Despite all this, there really hasn’t been too much forward movement in the sector. In fact, since 1993, over 208 coal blocks holding around 50 billion tonnes reserves have been allocated for captive users. However, still only about 30 blocks have started production, mining just about 40 million tonne (MT) of coal against the potential of over 200 MT. This indicates that the domestic production has never been able to meet the industry demand. Even for the current Plan (2007-12), the Commission had earlier estimated that coal production will reach 680 MT by 2011-12, but the figure was later revised to 630 MT in a mid-term appraisal, and was further scaled down to 554 MT. In fact, production shortfall in the current fiscal is projected at 142 MT, with domestic output likely to touch 554 MT.

No doubt, as per Planning Commission estimates, domestic coal production will grow to 770 MT by 2017 (on the basis of projected annual growth of around 7%), but by then the demand too would soar to 1,000 MT, requiring companies to import 200 million tonnes. For the uninitiated, over 60% of India’s commercial energy need is met by coal (India’s proven reserves of coal currently stand at 110 billion tonnes). Although, as per estimates, the share of coal in terms of India’s total energy needs would drop by 2024-25, the fall would be marginal 4-5%.


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