KOLKATA (miningweekly.com) – The Indian government’s demonetisation of high-value currency notes has started to impact on coal offtake, particularly among small consumers that do not have long-term supply contracts with Coal India Limited (CIL), or the cash to participate in e-auction and take deliveries of the fuel.

On November 8, the Indian government banned currency notes of Rs500 and Rs1 000 as legal tender ostensibly to flush out ‘black money’ or illicit wealth held in cash and counterfeit currencies in circulation. These currency notes, as per Reserve Bank of India, constitute around 86% of the total value of currencies in circulation in the country.

While there are no firm data available yet on the demonetisation drive’s impact on coal offtake, Mining Weekly Online’s interactions with a number of small coal consumers in the eastern region, including members of Coal Consumers Association of India, and anecdotal evidence, indicate that consumers and traders are staying away from participating in CIL e-auctions, as they do not have the cash available to make advance payments as required for submitting bids at these auctions.

According to a member of Coal Consumers Association of India, headquartered in Kolkata, the government’s ban on high-value currency notes as a legal tender has caught small coal consumers and traders in a vicious cycle of a liquidity crisis.

At least two members of the association have pointed out that traders are not being paid against already completed deliveries, as buyers are left with no cash. Without receiving payments traders are not in a position to make fresh bookings for coal with CIL, leaving buyers and consumers, in the lurch.

Some of the payments in the transaction cycle, like payments to CIL, are done electronically. However, cash transactions are a dominant part of the rest of the transactions, including incidental payments for transporting coal stocks from CIL stockyards and subsequent deliveries to actual buyers, loading and unloading labour charges and payment of toll charges along the highways.

A statement issued by the All India Motor Transport Congress, representing over 9.3-million trucks that ply across the country, states that about 70% of the trucks in the country are either stranded along highways or are off the road as fleet operators have no cash to pay drivers and attendants.

Almost half of the total coal mined in India relies on road transportation while the balance is through the government-owned and -operated, Indian Railways.

At least two owners of sponge iron units located in eastern India and totally dependent on merchant purchase of coal from CIL have said that they did not offer credit against lifting coal. Most buyers of sponge iron are small businesses and cash dependent and are not making any payments for past transactions. As such, sponge iron units are not able to lift new coal stocks.

Since the large quantum of currencies was sucked out of the economy, India has been seeing widespread dislocation of business and daily life, with serpentine queues at banks to exchange old currencies notes. Government has imposed limits on cash withdrawals from bank accounts and daily withdrawals at ATMs. Most of the 200 000 ATMs went on the blink either because they ran out of cash or they were not configured to dispense the new currency notes introduced by the central bank.

Businesses with current accounts are now permitted to withdraw only Rs50 000 a week.

Neither CIL officials, nor coal buyers are able to hazard a guess as to how the fall in coal offtake will unfold in the coming days and what impact it will have on CIL’s plan to sell 120-million tons of coal through e-auction in the current financial year.