Context: Recently, the government has clarified that any foreign direct investment (FDI) in commercial coal mining from an entity of a country that shares land borders with India will be allowed only after government approval.

• The new policy further states that a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors and activities other than defence, space and atomic energy.

Background

• In 2018, the government had allowed commercial mining by private entities but non-coal companies couldn’t participate in the auction. 
• Government of India had earlier permitted 100 % FDI under automatic route in coal mining activities, including associated processing infrastructure for sale of coal.
• In January 2020, the Union Cabinet has approved an ordinance to attract investment in coal mining. The ordinance amends the Mines and Minerals (Development and Regulation) Act, 1957 and the Coal Mines (Special Provisions) Act, 2015.
• It aimed to promote foreign direct investment in the sector. This will help India gain access to sophisticated technology for underground mining used by global miners.

FDI in Commercial Coal Mining

• As per this FDI policy, 100 per cent FDI under automatic route is allowed for coal and lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities permitted under and subject to applicable laws and regulations.
• In addition, 100% FDI under automatic route is also allowed for setting up coal processing plants such as washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to processing plants.
• It is also clarified by the government that for FDI on coal mining, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
• Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

Significance of Commercial Coal Mining

• The commercial mining allows the private sector to mine coal commercially without placing any end-use restrictions.
• The private firms have the option of either gasification of the coal or exporting it.
• The auction for commercial coal-mining can bring the coal sector out of decades of lockdown.
• With 100 per cent foreign direct investment allowed in the coal sector, global companies can also participate in the auctions.
• The complete freedom to decide on sale, pricing, and captive utilisation is expected to attract many private sector firms to participate in the auction process.
• It will effectively end state-owned Coal India’s monopoly over mining and selling of coal.
• The auction process will lead to energy security for the country and enable us to take advantage of our rich coal reserves.

Concerns associated with Commercial Coal Mining

• Some state governments have chosen to oppose commercial coal mining, which damages our national interests because it makes it difficult to deal with local issues thereby slowing down commercial mining.
• The epicentre of coal production in India has started to shift from Dhanbad to Hazaribagh as the Jharia coalfield gets depleted, and the Karanpura coalfield is brought into production.
• Identifying rightful landowners and paying them fair compensation is probably the greatest challenge that India face on the ground.
• The land records are still not fully digitised and remain subject to endless disputes and litigation.
• There is significant fraud and criminal activity associated with land records.
• The move would devastate the indigenous tribal populace and lead to exploitation of coal mining activities.
• The coal bearing States seeking to maximise returns on the scarce natural resource gets diminished due to the foreign competition.

Role of State Governments in Commercial Coal Mining

• While the central government auctions coal blocks, state governments need to handle local issues efficiently and with sensitivity.
• The state governments must collaborate with the central government to handle the resettlement process and provide new job opportunities and economic benefits to affected populations while maintaining law and order.

About Coal Sector in India

• Coal is India's third-largest import because in 2019 India imported about 235 million tonnes of coal, spending Rs 1.71 lakh crore or about $23 billion.
• India import both thermal and coking coal from Indonesia, South Africa, Australia and Russia.
• India has the world’s fifth-largest reserves of coal.
• Top five states with highest coal reserves include Jharkhand (26 per cent), Odisha (24 per cent), Chhattisgarh (17 per cent), West Bengal (11 per cent), and Madhya Pradesh (8 per cent).

About Tidbits

• Major coal mines are located in eastern and south-central India.
• Jharkhand has the largest coal deposits followed by Odisha.
• Dhanbad in Jharkhand is the largest coal-producing city in India.
• Coal was first mined in 1774 when two employees of the East India Company started commercially exploiting the Raniganj Coalfield.
• Coal mines were nationalised in the seventies.