The coal sector: fuelling economic growth and testing India’s ability to reform

Coal is fuelling India’s economic growth. In 2012, it accounted for 45 per cent of total primary energy demand and 72 per cent of generated electricity, making India the third-largest coal consumer in the world (IEA Medium-Term Coal Market Report, 2014). Energy demand in India is set to more than double from 2012 to 2040. Despite substantial investments in other energy sources, especially in renewables, coal will remain the dominant fuel to 2040, with demand doubling over the period. This dominance is in large part due to India’s vast proved coal reserves – the world’s fifth largest (BP Statistical Review, 2014). Domestic production was 605 million tonnes (Mt) in fiscal year 2012/13 and is expected to increase to 736 Mt by 2019. However, the actual economic viability of reserves and their suitability for high-tech applications, especially in the power and steel sector, remain debated among experts. For example, untreated Indian coal has only limited suitability for super-critical power plants that are to become the norm for all coal-based generation starting from 2017. Consequently, the share of imported coal will increase sharply over the next decades. In FY 2012/13, India imported 135 Mt (22 per cent of total demand). Imports are expected to triple to 2040 and import dependency to rise to nearly 40 per cent (all data from IEA World Energy Outlook, 2014; IEA Medium-Term Coal Market Report, 2014). Given coal’s crucial role, the sector faces some important challenges that have implications for India’s economic development.