Coal price hike would be necessary in view of imports: RBI

Increase in coal prices will be required in view of growing need for imports to bridge the demand-supply gap, the Reserve Bank said today.

"An increase in coal prices would be necessitated, factoring in coal imports that would be needed to bridge the demand-supply gap," the apex bank said in its Macroeconomic and Monetary Developments report released on the eve of the annual policy for 2013-14.

RBI further said that despite being one of the major coal producers in the world, India's coal import was at 113 million tonnes (MT) from April 2012 to January 2013, "which is a jump of 29 per cent, on top of a rise of 47 per cent witnessed during the previous year".

Of the total estimated domestic demand of about 770 MT in the current fiscal, 21 per cent would have to be met through imports, it said, adding that "greater reliance on imports could lead to increase in costs which could reflect in prices".

The apex bank also said that the power sector has been largely affected by the shortage of coal and gas, which led to cutbacks in electricity generation.

The gap between demand and supply of coal, it said, continues to diverge and is likely to widen further during the 12th Five-Year Plan (2012-17), which in turn, may affect several power projects.

"On the one hand, more expensive imported coal may erode the profit margins of the producers, and on the other hand, several State Electricity Boards are supplying electricity at less than break-even price.

"Urgent policy intervention to augment coal supplies is necessary to sustain power sector investments," it said.

Last year, the Planning Commission had said that India's coal imports are likely to touch a whopping 185 MT by 2017, almost 20 per cent of the global trade in the sector amid widening demand-supply deficit.

Projecting the imports to touch 185 MT by 2017, as against 137 MT by the end of the 11th Five Year Plan, the Commission had said that there is an urgent need to take effective measures to step up coal production.