What is the impact of the Coal Scam on the Indian Economy?

In recent years, India has experienced a series of corruption scandals that have shaken its political and economic sectors. One such scandal that has had a significant impact on the Indian economy is the coal scam. The CAG report estimated a potential loss of revenue between ₹1.86 trillion and ₹10.67 trillion (US$23 billion to US$130 billion) due to the opaque allocation process.

This immense sum represents lost revenue that could have been directed towards crucial sectors like education, healthcare, or infrastructure development. Furthermore, the lack of transparency in allocation discouraged genuine investors and created an unfair advantage for select companies.

This article aims to find the consequences of the coal scam and how it has affected the nation’s economic growth and stability.

  1. Energy Security concern

India heavily relies on coal for its energy needs, with nearly 70% of the country’s electricity coming from coal-fired power plants. The coal scam disrupted the supply of coal, leading to a shortage and subsequent increase in coal imports. This not only affected the energy security of the country but also added to the import bill, putting pressure on the current account deficit.

  1. Economic Growth

The loss of revenue, coupled with the disruption in coal supply, has adversely affected various industries such as steel, power generation, and cement. These industries heavily rely on coal as a raw material, and the scarcity of coal has led to reduced production and increased costs, ultimately impacting the overall GDP growth.

  1. A Way for Reform

The government implemented measures to increase transparency and accountability in resource allocation. The Coal Mines (Special Provisions) Act of 2015 required allocation through auctions to ensure a fair and competitive procedure. While this is an excellent step, there are still hurdles to ensuring the successful implementation of these reforms.

  1. Investor Distrust

The coal scam distributed a severe blow to investor confidence in India. The scandal highlighted the extensive corruption and lack of transparency in the country’s business environment. Domestic and foreign investors became hesitant to invest in India, resulting in a decline in foreign direct investment (FDI). This setback further hampered economic growth and job creation.

The coal scandal has left a lasting impression on the Indian economy, affecting a variety of industries and affecting the country’s growth potential. However, the incident acted as a turning point , leading to legal and regulatory measures to combat corruption and restore transparency.

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