Coal ruling to hit India's nascent economic recovery: report

Mumbai: The Supreme Court verdict cancelling 214 coal blocks may adversely impact India's economic recovery as it will hit key sectors and its "tremors" will be felt in states as well, a rating agency said on Thursday.

In a landmark judgement, the apex court yesterday quashed allocation of 214 out of the 218 coal blocks which were alloted to various companies since 1993. The top court, however, allowed these cancelled blocks to continue extracting coal till March 31, 2015.

"We believe that the coal block cancellation by the Supreme Court could adversely impact the country's nascent economic recovery," India Ratings said in a report.

The report said the renewed coal scenario most likely would lead to an increase in coal prices, and this along with the revised gas pricing formula (under discussion) would increase fuel cost and thus electricity rates.

The rating outfit said in the event of insufficient fuel cost pass through to end users, the financial health of discoms (distribution companies) would deteriorate further. "In case the fuel price hike is passed through completely, it will stoke inflation." The report further said the banking and financial institutions' exposure to these coal blocks is around a whopping Rs 2.5 trillion.

The banking sector is already under stress. And apart from commercial banks, Rural Electrification Corp and Power Finance Corp, too, will be hit by the cancellation, it said.

The SC has imposed a levy of Rs 295 per tonne of coal extracted till now by all cancelled block holders. India Rating said the ruling will have a direct impact on corporates with allocated coal blocks and the "tremors" will be felt on state governments as well.

"While there may be some windfall gain for the Central Government this fiscal from the additional levy imposed, six states' finances would be affected by this ruling."

West Bengal is likely to be the worst affected, as six operating coal blocks allocated to various State Government companies have been annulled.

One operating coal block allotted to each state government company from Arunachal Pradesh, Karnataka, Madhya Pradesh, Punjab and Rajasthan, too, has been cancelled.

After two years of under-5 per cent GDP growth, Asia's third largest economy expanded at 5.7 per cent in the first quarter of 2014-15.