SC decision to cancel coal blocks likely to have adverse impact on economy: CII

The Confederation of Indian Industry (CII) on Wednesday said the decision taken by the Supreme Court to cancel all but four coal blocks is likely to adversely impact the domestic coal supplies in the country and will erode investor confidence.

"While the judgement may have been intended to bring in transparency, it will jeopardise the investments made in the sector. It will raise questions on sanctity of government policies impacting the investment climate. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term," said CII President Ajay Shriram.

"It would also be important for the government to put in place a new transparent mechanism for allocation of coal blocks at the earliest," he added.

Shriram said the court's decision has created uncertainty and is likely to impact key sectors including power, steel and mining.

"In particular, given that the power sector is the largest consumer of coal in India (coal-based power generation accounts for 2/3rd of India's electricity mix), this development is likely to exacerbate the shortage of fuel for the power sector. In fact, acute fuel shortages are already impacting the power sector and currently close to 80 million tonnes of coal are being imported to meet the sector's requirements," said Shriram.

"Another sector that will be impacted by this ruling is the financial sector as the exposure of public sector banks to the power and steel sectors is considerable. In fact, banks account for over 60 percent of the overall investments in these blocks," he added.

Shriram further said while CII supports moves towards enhancing transparency, efforts have to be taken to ensure policy consistency to protect investors.

"CII would like to reiterate that while it respects the judgement of the apex court decisions, taken retrospectively could impede future investment flow into the country," he added.

The Supreme Court today quashed allocation of 214 of 218 coal blocks alloted between 1993 and 2010.