The government’s plans to auction coal blocks to private companies may prove to be a handy tool in its battle to contain key budget deficits in a year of crippling economic slowdown.
The government has recently approved a policy to give coal-mining licences to private companies through competitive bidding. The new auction-based system, a first in India, will replace the earlier controversial policy of allotting coal blocks based on the recommendations of a bureaucrats’ panel.
The first set of mines is expected to go up for auction within the next two months. The new rules will make allocations more transparent and earn precious revenues for the government.
The extra revenues will likely aid the government’s efforts to keep the fiscal deficit — a measure for the amount of money that the government borrows to fund its expenses — within the targeted 4.8% of GDP from the previous year’s 5.2% of GDP.
Besides, the auctions will make more coal available domestically. The resultant drop in imports will reduce foreign exchange outflow and help reduce the current account deficit (CAD).
The government is targeting to contain CAD - the gap between dollar inflows and outflows — within $70 billion or 3.7% of GDP from the record $88 billion or 4.8% of GDP last year.
Under the new rules, successful bidders will have to disclose a work schedule, make payments linked to the volume of coal dug out from the mines besides shelling out an upfront fee roughly equivalent to the 10% of the estimated value of the coalfield.
The government has been under relentless attack from the Opposition after India’s national auditor Comptroller and Auditor General (CAG) in a report last year suggested that the arbitrary allocation of coalfields may have robbed the exchequer of potential revenues of Rs 1.86 lakh crore between 2004 and 2011.