Coal imports to rise just 3.4% in FY14

In 2012-13, India’s burgeoning coal imports was among the finance ministry’s key concerns. This financial year, imports were seen rising at a worrisome 40%, owing to a domestic shortage, further increasing the country’s current account deficit (CAD). But 10 months into the current financial year, it appears the fears were grossly exaggerated.

Belying expectations, India’s coal imports rose a mere 16% to 131 million tonnes (mt) between April 2013 and January 2014. For the entire financial year, imports are likely to grow a subdued 3.4% to 150 mt, a stark contrast to the 42% growth registered in 2012-13.

The sharp drop in coal imports is due to rupee’s depreciation, as well as a slump in demand. These two factors offset the impact of depressed global prices.

While the 16% rise in imports in the April-January period led to a total foreign exchange outgo of Rs 56,588 crore, 27% more than Rs 44,539 crore in the year-ago period, this was lower than initial expectations. The calculation of the value of imports is based on an average price of Rs 4,300 a tonne (5,500 kilocalorie Indonesian coal, landed at the Visakhapatnam Port) this financial year, 8.9% more than Rs 3,945 a tonne in 2012-13.

“Last year, the rupee had touched 65/dollar. Since then, the rate has stabilised to about 62, which is still high for imports to pour in. The impact was already visible, as January 2014 imports stood at just 9.16 mt, a 33% fall year-on-year. For 2013, imports were just shy of 158 mt, 11% higher than in the previous year,” said Kalpit Dubey, analyst at commodities research firm OreTeam.

He added the lower growth in imports might not have any significant impact on the CAD, as this continued to be dominated by oil shipments. “India’s CAD is overburdened by crude oil imports; coal accounts for less than two% of the total imports, in terms of dollars.”

Last financial year, coal production in India rose a sluggish 3.3% to 557 mt, owing to delayed environmental clearances for new mines and the failure of captive miners to boost output. The supply gap had to be bridged by a 42% rise in imports at 145 mt.

From 73 mt in 2009, coal imports have almost doubled, leading to foreign exchange outgo of Rs 2,44,000 crore since then. However, due to a fall in imports, analysts expect imports this financial year to be just 3.4% more than 145 mt in 2012-13.

Coal is among the top five items in India’s import bill of about $415 billion a year. A weak rupee raises the bill, leading to higher inflation and a wider current account deficit. This strains the country’s foreign reserves and further strains growth in gross domestic product, which fell to a decade-low of 5% last financial year.