It’s not just a surge in crude oil imports, but also a spike in imports of coal and other ores that have resulted in rising trade and current account deficits, adding to the downward pressure on the rupee.
While petroleum imports were up 25 per cent in value terms in 2017-18 due to higher crude oil prices and a depreciating rupee, the value of coal imports rose by an even higher 45 per cent in the 12 months to March 2018. The increase in coal shipments comes alongside a 44 per cent jump in the value of precious and semi-precious stones imports, and a 47 per cent jump in imports of metal and mineral ores.
The rupee closed at an all-time high of 71.58 to a US dollar Tuesday.
While total imports in value terms jumped 21.1 per cent to $465.5 billion in 2017-18 from $384.3 billion the previous year, roughly a quarter of this increase was on account of petroleum products. At the same time, the exports increased by a tepid 10 per cent (to $303.3 billion in 2017-18 from $275.8 billion in 2016-17), thereby widening the trade gap.
The growth in raw coal production of Coal India Ltd (CIL) has slipped over the last three years, down from over 9 per cent in 2016-16 to 2.9 per cent in 2016-17 and then to 2.4 per cent in 2017-18. The trend is reflected in the first quarter of this financial year with GDP data showing a sharp decline in mining and quarrying activity.
The recently released GDP estimates data shows that while the GVA (gross value added) rose by 8 per cent in Q1 2018-19 on the back of strong growth in manufacturing and construction, it shows that the mining and quarrying sector grew at only 0.1 per cent during the quarter. This growth was actually on a low base of 1.7 per cent growth seen in the same quarter last year.
During the first quarter of 2018-19, CIL said it had dispatched 122.2 MT coal to the power sector, a growth of 15 per cent over the dispatch in the corresponding period last year.
In the year ended March 2018, while import of petroleum products increased $21.6 billion in absolute terms, the import of coal and coke, iron and steel, non-ferrous metals and metal ores and minerals rose $15.9 billion (roughly 73 per cent of the absolute rise in import value of petroleum products).
Though the current account deficit stood at 4.7 per cent in 2012-13, it fell in line with the decline in crude oil prices and had slipped to a low of 0.6 per cent in 2016-17. It, however, rose to 1.9 per cent in 2017-18 on account of the rise in crude oil prices, and the surge in value of import of coal and other metals and minerals. The State Bank of India, in a report in August, had projected the CAD to touch 2.8 per cent of GDP this fiscal.
Coal imports are likely to be much higher this year, given the spate of tenders issued by utilities in just the first four months, aggravating the current account deficit position further.
For the first time in four years, state-owned NTPC Ltd, the country’s biggest power generator, floated tenders last month to import a total of 2.5 million metric tonnes (MT) of coal. The two tenders for coal shipments — equivalent to about 4.5 per cent of total coal imported by the country’s power stations last year — have come at a time when utilities are facing coal shortages at some of its plants as production at Coal India has failed to keep pace with surging demand following higher electricity generation. Bottlenecks in transporting coal from pitheads to power stations has exacerbated the situation.
The shortages, though, are not limited to just power stations. Coking coal, used in steel-making, has seen a sharp surge, reflecting both a surge in domestic steel production as well as shortage of Indian supplies of this higher-grade coal variant. Incidentally, the rebound in the country’s coal imports come at a time when prices for thermal coal have surged to the highest levels in over six years on the back of robust Chinese imports triggered by a hot weather spell and some output restrictions in some of the mines there.
After a dip in 2016-17, overall coal imports increased nearly 10 per cent in FY18 and are projected to surge this fiscal. Within the different coal segments, coking coal imports have seen a sharper 14 surge in 2017-18 and fresh data for the first two months of this fiscal indicates that coking coal imports could be headed to a new high this year. This comes at a time when the country’s electricity demand rose nearly 6 per cent in the first 4 months of the current fiscal as against the corresponding period last year, according to data compiled by the Central Electricity Authority (CEA).
Industry players have indicated that while coal imports by operators of large power plants that are connected to the grid have actually seen a dip, the surge in demand is being reported by utilities operating captive electricity generation stations that are attached to manufacturing units such as cement plants and aluminium smelters. India’s captive capacity is estimated at upward of 30,000 MW. Indian coal, due to its drift origin, contains higher percentage of ash as compared to imported coal, resulting in lower heat value per tonne of coal.
Officials in the Ministry of Coal indicated that coal imports have fallen from 217.78 MT in 2014-15 to 190.95 MT in 2016-17, following which imports showed a rebound to 208.27 MT in 2017-18 “due to increase in demand by the consuming sectors”.
Government officials contend that since the entire demand of coking coal is not met indigenously, as the supply of high quality coking coal (low-ash-coal) in the country is limited, there is no option but to resort to import of coking coal.
Rating agency Crisil estimates that the power sector imports are projected to cross 75 MT by 2022-23, driven by demand from imported coal-based plants as their plant load factors (PLFs) improve following growth in power demand, even as non-power sector imports are expected to decline to 70 MT due to improvement in domestic supply post linkage auctions and development of key captive blocks allocated to the non-regulated sector.