Jump in coal imports led to 44% rise in forex outgo last quarter

This comes at a time when the government is struggling to stem a widening current account deficit

Riding on the back of constrained domestic production, India’s coal imports jumped 33 per cent in the quarter ended June 30, leading to a foreign exchange (forex) outgo of close to $1.9 billion (Rs 11,485 crore on Thursday), up 44 per cent against $1.3 billion in the year-ago period.

The jump in costly shipments of the commodity, and the associated forex outgo, comes at a time when the government is struggling to stem a widening current account deficit, which stood at a record 4.8 per cent of gross domestic product (GDP) last financial year. The energy-hungry country imported 27.7 million tonnes (mt) of coal between April and June, compared with 20.7 mt in the corresponding period last year, according to data obtained from the Indian Ports Association (IPA).

The 44 per cent rise in the forex outgo is based on an average coal price of $69.5 per tonne (5,500 kilocalorie Indonesian coal landed at Visakhapatnam port) this financial year, a 7.7 per cent increase over the average price of $64.5 per tonne last year. Indonesian coal accounts for a bulk of India’s thermal coal imports of around 110 mt annually. Another 25 mt of steel-making coking coal is imported largely from Australia and South Africa. Overall, imports are likely to go up to 180 mt in FY14.

The impact of the rising imports has been heightened by a weakening rupee. In value terms, India saw a drain in forex worth Rs 10,830 crore on account of coal imports in the first quarter based on an average conversion rate of Rs 57 for every dollar the previous quarter. This is a 57 per cent increase over the Rs 6,890 crore outgo in the corresponding period last year at the then conversion rate of 53 per dollar.

Experts attribute the exponential increase in coal imports for the world’s third-largest producer to an ongoing decline in local output and to a recent decision by the government to allow power generators to pass on the burden of high cost of fuel imports to consumers.

“Domestic coal demand has shown a rising trend because of the Union Cabinet’s approval for pass-through of imported coal cost. Also, Indian demand was subdued last year. I see global prices going up further, by at least five per cent, by the end of this financial year even as the ongoing scenario of economic gloom has partly dampened demand elsewhere,” said Dipesh Dipu, partner at resources-focused consultancy Jenisse Management Consultants.

Coal is among the top five items in India’s import bill of around $415 billion annually. The bill rises owing to the weakening rupee, leading to higher inflation and a wider current account deficit. This strains the country’s foreign reserves and further strains GDP growth that slowed to a decade low of five per cent last financial year.