An index that will link coal prices in India to global prices?

New Delhi: An association of miners is lobbying hard to prevail on the government to do away with a proposal to create a national coal index. The index will link coal prices in India to international prices, a Reuters report said. The linking of coal prices in India to international prices is crucial for attracting foreign investors to the mining sector. The government opened up the sector to 100 percent Foreign Direct Investment (FDI) in September.

Index will end CIL's control over prices

The proposed national coal index will end state-run Coal India's control over prices and privatise the coal sector. A government panel has proposed two price formulas, both of which use prices of imported coal to arrive at a benchmark for coal prices, the report said. One of the two proposals envisages linking the index directly to a foreign counterpart, such indexes in Indonesia and Australia.

The government is planning to invite bids for coal mining blocks from global firms by the end of 2019.

How will the index impact coal prices in India?

The index will bring coal prices in India closer to international prices. This, in turn, will dent local coal's competitiveness as it is typically lower-quality. The index will open up trading of coal futures and options. However, the idea is being met with stiff opposition from industry group Federation of Indian Mineral Industries, which counts Rio Tinto's India unit and Adani Enterprises among members.
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The federation wrote to the government in August arguing against linking coal prices back home to international prices. The opposition is likely to delay the creation of the index.