India's Coal Paradox

SYNOPSIS

India produces more coal than ever before and still imports millions of tonnes every year. This blog breaks down why high stockpiles and import dependence exist at the same time, how coal props up government revenue and railway earnings, and what artificially low electricity prices cost the entire energy chain. A structural paradox with real consequences for utilities, investors, and the Indian economy.

India crossed 1 billion tonnes of coal production in FY25. That is a record. And yet, in the same in the same country, the year, the country imported over 243 million tonnes of coal abroad If that sounds contradictory, it is because it is. Welcome to India's coal paradox.

In FY25, India hit a production milestone. For the first time, the country mined over one billion

tonnes of coal in a single year, closing at 1,047 million tonnes, about 5% more. Nearly 85% of coking coal used in steel production is imported, making India the world's largest importer of coking coal. The problem is not total quantity but quality. Domestic coal is low-grade non-coking coal. What steel plants, coastal power utilities, and industrial units need is something different that India's geology simply does not offer.

This is where macroeconomics steps in. The 7.9% drop in imports last year saved India

approximately 7.93 billion dollars in foreign exchange. That matters enormously for a country

managing a trade deficit and a depreciating rupee. Every tonne of imported coal is a dollar

outflow. Reducing that outflow is as much a balance-of-payments decision as an energy one.

But coal is not just about power plants. It is fiscal infrastructure. The coal sector contributes over 70,000 crore rupees annually to central and state governments through royalties, GST, and other levies. Fossil fuels broadly contribute nearly 9 lakh crore rupees annually to the

government exchequer, accounting for 16% of all government revenue. Taxing coal is easy

revenue. Replacing that revenue if coal shrinks is a political problem no government has solved yet.

Then there is the electricity pricing angle. Nearly 59% of energy subsidies in India are locked

inside electricity subsidies. States keep power tariffs artificially low to serve residential and

agricultural consumers. The result is that distribution companies, or DISCOMs, stay financially weak. They cannot afford expensive imported coal for blending, which is why imports for blending by thermal power plants fell sharply by 41.4% in FY25. When the government keeps electricity prices low, power companies do not have the money to be choosy about coal quality.

They buy what is cheap and available. Domestic coal wins by default, not by merit.

For anyone putting money into this sector, that is worth paying attention to. Coal-based thermal power is projected to hold a 55% share of India's generation mix even by 2030. Railways earn nearly half their freight income from coal movement. Coal India remains a cash-generating public sector giant. None of this disappears quietly.The paradox is structural. India has too much of the wrong coal and not enough of the right kind. High inventories sit alongside import bills. Clean energy goals coexist with fiscal reliance on coal. Coal, oil, and gas together account for over 96% of India's total primary energy supply.

Transition is real but slow. And until the grid, the DISCOMs, and state finances stabilise, coal

stays. Not because India loves coal. Because the math still works.

Jaini Shah