Indian Prime Minister Prods Coal Monopoly – by Raymond Zhong and Niharika Mandhana (Wall Street Journal – May 13, 2015)

http://www.wsj.com/news/world

Narendra Modi seeks to boost output by cutting red tape and sparking competition

BEJDIH, India—Prime Minister Narendra Modi wants to end decades of crippling electricity shortages and turn this country into a manufacturing dynamo. Coal India Ltd. is standing in his way.

At the state-run behemoth’s mine here, men still move coal in baskets on their shoulders. At another project, electricity is so unreliable miners descend in a steam-powered elevator. One giant mine that opened last year runs at a fraction of capacity because a rail line to haul its coal is mired in bureaucracy.

Committees and economists have long studied how to whip Coal India, the world’s largest producer of the fuel, into shape. Labor unions and their allies oppose ideas such as breaking the company into smaller units or privatizing it.

Mr. Modi is taking a gradual approach, centered on what officials call the Billion-Ton Plan: an attempt to double the company’s output in five years by stepping up investment and untangling administrative obstacles.

At the same time, he has steered through Parliament a law opening the way for private companies to mine and sell coal, which could eventually end Coal India’s four-decade monopoly on commercial production.

The two-pronged plan typifies an emerging Modi strategy for getting the cumbersome Indian economy to run better: Fix the plumbing first. Worry about building a new house later.

As Mr. Modi’s administration completes its first year, this cautious approach has frustrated some executives and investors who saw his landslide election win last year as potentially transformative. Instead of slashing costly subsidies for food and fertilizer, he is streamlining their delivery. Instead of repealing a law allowing retroactive taxation, the government is wielding it “with extreme caution and judiciousness,” as his finance minister puts it. Indian markets have taken a beating recently after some foreign investment funds were hit with surprise tax bills.

And instead of privatizing state-run companies, the government is playing nurse.

Breaking up Coal India is a “stock-market-friendly but inefficient suggestion,” said Piyush Goyal, Mr. Modi’s coal minister. “Reform, to my mind, is efficiency.”

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