Court must remove uncertainty over coal investments

Final coal judgment will hopefully end uncertainty

The Supreme Court on Monday held that 194 coal mining areas, or "blocks", handed out by the government between 1993 and 2010, were illegally allotted. The government has the power to allocate coal blocks to enterprises in specific sectors - such as power, and iron and steel in particular. However, the court found that the process by which it did so was casual and breached guidelines, and lacked transparency - and, thus, arbitrary and illegal. That the allocations were illegal does not mean that the court has cancelled the allotment of coal blocks; that decision will be taken on September 1. This verdict comes two and a half years after the Supreme Court cancelled 2G telecom licences for similar reasons. The court subsequently clarified, in response to a presidential reference, that resource allocation was the prerogative of the executive, and the courts would concern themselves only with criteria of "fairness and non-arbitrariness". It is these criteria that the Supreme Court found to have been violated in the case of coal allocation. Its verdict on Monday led to considerable uncertainty. Shares in some companies that benefitted from the allocation of coal blocks fell sharply after the court's decision. Banks, which have lent around Rs 7.7 lakh crore to the coal block-dependent power and iron and steel sectors, are also worried about a sudden and sharp deterioration in already poor asset quality.

Unlike the wholesale cancellation of 2G licences, which had thrown the entire sector into a state of limbo for some considerable time, the Supreme Court on this occasion has taken a more granular view, which former coal secretary P C Parakh described in these pages as "practical". Chief Justice R M Lodha, in fact, said that the court might set up a panel under a retired judge to examine individual cases. This would be a vital step forward to restoring transparency and clarity to the coal and related sectors. It will also be necessary to ensure that the Rs 2 lakh crore that has been invested in the sector is not rendered valueless. Many of the blocks have already been cancelled; others are not yet operational, due to environmental and other concerns, but the linked investments have been made. Around 40 of them are already producing coal - between 40 million tonnes and 60 million tonnes a year, about 10 per cent of the total production in India. It is to be hoped that the court-appointed panel is able to ensure early removal of the uncertainty over investments made in these coal blocks.

The revival of India's economy, and of its manufacturing sector, depends on the availability of power. There is considerable coal-fired capacity in the power sector, but inventories of coal for these plants are never sufficiently deep. The iron and steel sector, similarly, is basic to industrial growth. That is why it is welcome that the court has decided to be cautious in the actions it takes in response to the illegality it says it has found. It is to be hoped that the panel to which the chief justice referred, and the eventual judgment, will take into account how badly the Indian economy needs clarity and pragmatism in the coal sector. More than just this and related sectors, the entire economy, and the country as a whole, need to move on from the corruption-related paralysis and uncertainty that has marked the last few years. In this national effort, the Supreme Court has a vital role to play.