The Indian Government had decided to adopt a greater liberalized approach to the Indian economy in 2020, deciding to exit ‘non-strategic’ sectors completely andreduce state involvement in ‘strategic’ sectors, allowing for more private participation. The goal of this is to increase economic efficiency and to better use funds for social development. The coal sector has been deemed to be a‘strategic’ sector and crucial to the USD five trillion economy goal of India. Given that the Government is betting high on the coal sector and has decided to reduce state presence and increase privatization in the sector, it would appear that the foundation has been laid for a regulator to enter and govern the sector. However, a regulator has not materialized. Had a regulator been present in this sector, India would be a step closer to transitioning to being a regulatory state, and it would have mitigated many of the associated risks present in the coal sector. 

The author argues that a liberalized economy without any regulatory governance would simply exacerbate the risks in the coal sector. If an efficient and socially sustainable outcome is desired, a risk-based regulatory approach ought to be pursued. The argument would be furthered by understanding why regulation occurs and the functioning of a regulatory state, outlining the risk-based approach to regulation, and examining the concomitant risks in the sector and how to control them.

I. The Activity of Regulation and the Regulatory State 

Regulation can be understood as a process ofinfluencing behaviour to reach a certain desired outcome while preventing undesired outcomes. In the context of economic regulation, this often translates to striving to prevent market failures. The market failure rationale encompasses regulation to eliminatemonopolistic and anticompetitive behaviour, regulating windfall profits, providing a continued availability of a service, and curbing informational asymmetry to provide better bargaining power between consumers and firms. However, one cannot separate the market from society. This is whysocial rationales for regulation exist, such as human rights protections and distributive justice measures. 

The notion of a regulatory state marks adeparture from the earlier conceptions of the welfare state and its role. In the quest for economic efficiency, the state no longer partakes in economic activity and no longer acts as a provider. Rather, it now employs an ‘arms-length’ distance from the governance of economic activity. The regulatory state can be characterized by the divestment of state investment in sectors (what is commonly understood as ‘rolling back’), leaving the sector in the hands of competitive market forces and private actors, along with independent regulators that regulate these actors. It is important to note that regulation can take place through government institutions as well as independent regulators. However, the latter is considered to be more desirable in order to promote efficiency and reduce bureaucratic interference. 

Since the advent of liberalization, India has gradually attempted to shift to a regulatory state. State-owned monopolies in telecommunications, electricity, petroleum and natural gas sectors have been done away with and replaced with private players and independent regulators. However, asNavroz Dubash points out, these examples do not paint a picture of pervasive regulators and a regulatory state. This is due to the fact that the Indian statehas not rolled back, and many sectors of the economy still contain extensive government presence. 

The coal sector, until recent divestment, has been one such sector that has seen extensive governmental presence. There have been attempts at establishing a regulatory authority; however, the bills introduced in the Lok Sabha have lapsed. While there is some regulation taking place through the Ministry of Coal, along with the Directorate General of Mine Safety (‘DGMS’)prescribing regulations for all mines, these institutions are plagued by the perennial issue of governmental control and regulatory capture. Having an independent regulator created by statute (akin to the ones in the electricity and telecommunications sectors) would ensure regulatory functions are allowed to take place with no interference from the Government and keep them at a distance from the subjects they regulate. This would ultimately go towards boosting the efficiency of the sector, along with ensuring pressures from competing interests do not compromise efficiency.

a) Risk Regulation and Risks in the Coal Sector

Risk is commonly understood to mean the probability of an undesirable outcome occurring. In the domain of regulation, risk regulation is the process ofcontrolling relevant risks within the space of regulation within the sector. The process involves identifying either firms or activities in general which are obstacles, designing nudges, and then implementing them. While Baldwin, Cave, and Lodge see risk regulation as controlling risks rather than seeking rule compliance, I argue that the two need not necessarily be mutually exclusive in the Indian coal sector. After identifying the activities causing risks, the nudges designed (in the form of rules) ought to be complied with, as this compliance would reduce the risks in the sector. 

Within the coal sector, three predominant risks emerge: Poor worker safety standards and conditions, displacement of the population living along coal seams, and environmental issues.

b) Poor Worker Standards 

Historically, the coal sector has been fraught with poor worker safety standards. Despite the coal sector comprising largely state-owned companies (with concerns of worker safety being a justification for the nationalization of coal mines), the track record has been abysmal. Reports from the National Human Rights Commission (‘NHRC’) and the DGMS have highlighted that between 2009 and 2013, therewere seven hundred and fifty-two documented fatalities, with concerns that these numbers are far lower than reality. Workers are subjected to poor working conditions, being exposed to dust, heat, noise, and humidity. Unfortunately, the Coal Mines Regulations, 2017 which places certain obligations on owners of coal mines are inadequate in remedying these issues.Regulation 37 obligates owners to take all necessary steps to ensure the safety of workers. However, the language of the provision is very general and does not entail specific provisions to be made for workers by way of technical standards. 

Beyond death rates, there have been instances where workers have beendeclared competent to work by the companies (despite medical evidence to the contrary) only to be later relieved of duty. It is a big blow to the families of the miners, as miners are often sole breadwinners who survive on meagre wages with no alternative employment abilities. In the event of death or injury, their only source of income is crippled. Tedious health protocols also mean that during the Covid-19 Pandemic,workers are not able to be vaccinated as they risk the loss of wages. Given that miners are already at an increased risk for respiratory issues, they are more susceptible to the effects of the Covid-19 virus. Not declaring them as frontline workers and prioritizing vaccinations that will not affect their earnings is adding insult to their existing injuries.

c) Displacements along coal seams 

Another social failure in the sector is the displacement of the Adivasi population who live along coal seams. In order to begin mining activities, the population living along these seams are notified of land acquisition and are promised resettlement and compensation. However, these are hollow promises often not followed through. The acquisition process is governed by theCoal Bearing Areas (Acquisition and Development) Act, 1957. However, this is an extremely antiquated law with provisions that tilt the balance towards the state, which can further oppress the Adivasis. Section 9A vests special powers with the State in cases of urgency. This allows the State to do away with the objection phase (protection enshrined in Section 8), and declare that the land in question has been acquired by the Government. Coal is an extremely important commodity for the generation of power, and if there is a wide margin of appreciation given to the Government in cases of ‘urgency’, it is foreseeable that using justifications of urgency and public interest, the powers under 9A can be widely misused, as was similarly done during the period of Nationalisation. 

In the past as well, criticisms have been raised on the drafted rehabilitation policies by companies such as Coal India Limited (CIL). A number of organizations in Jharkhand noted that the policy accepts that such displacement is inevitable and national development had to supersede human rights, meaningless without anybinding powers despite being promoted as a ‘policy’ and proposed impossible rehabilitation plans.

II. Environmental Concerns 

While coal is a fuel source that is not the most environmentally friendly, steps are taken worldwide to ensure that the effects of burning coal are mitigated. Unfortunately, such steps are not seen in India. Exacerbating this is the fact that there does not seem to be any legislation or regulations that specify what steps are to be taken for environmental protection from mine activities. 

The ash content of Indian coal isbetween 30% and 50%, considerably higher than imported coal. The implication of this is that the power output is much lesser, requiring more coal to be burnt in order to generate desired quantities. Techniques such aswashing, segregation, blending, and crushing which can help reduce the amount of ash from coal are unfortunately not in use. 

Beyond the quality of coal, safeguards to trap and dispose of fly ash are not implemented, resulting in increased levels ofradioactivity and heavy metal poisoning over time.

III. A Risk Regulator- The Way Forward 

When the state itself has abdicated its social commitments, it is no stretch to imagine that large-scale privatization will exacerbate these risks. Firms are motivated by profits and are not likely to protect social or environmental interests as a trade-off. It is for this reason a regulator with the objective of controlling these risks must be established. While Baldwin, Cave, and Lodge do not see risk regulation as rule compliance, in this instance, rule compliance would be one method of controlling the risks. Now that the risks have been identified in the previous section, rules on firm activity can be created. Firms will need to comply with these rules and in doing so, the risks can be controlled. 

In order to operate a coal mine, firms will require a license. Developing risk regulation would require pre-requisites that firms will need to meet in order to secure such a license. 

Conditions on license holders are essential aspects that other regulated sectors have and can serveas a model for the coal sector as well. In the event the standards are not complied with, the regulator must be allowed to cancel the license of the mine operators. 

In the coal sector, these conditions would be shaped as follows, and licenses must only be granted once the satisfaction of the regulator is met:

  • Certain technical standards are to be specified by the regulator as safety measures. These could prospectively include aspects such as protective equipment and the use of technology in certain areas (such as blasting and scaffolding), thereby reducing the chances of human harm in these areas, along with a centralized location system to speed up any potential rescue operation. The medical standards need to be more streamlined, allowing workers declared medically unfit to get severance and pension benefits, along with reducing red tape for medical leaves. To ensure continued compliance with the standards, frequent audits would need to be conducted along with surprise inspections to keep operators on their toes. 
  • With respect to displacements, prospective license seekers must submit plans outlining the area of rehabilitation and efforts to establish new communities for the displaced persons in alternative sites. This would not only include the creation of accommodation but also the provision of economic opportunities and compensation, which is culturally sensitive. These regulations would need to be binding and require realistic timelines to ensure the interests of the displaced at protected and do not remain empty promises. 
  • The environmental mandate of the regulator would include mandating strategies such as washing, blending, and crushing to reduce the ash output. The design of fly ash drains would need to meet a certain technical standard to ensure optimum safety, as would the disposal of any by-products. Further standards would need to be stated in also maintaining the ecological balance of the land (such as river flow etc.). 

An argument could be made that these functions of the coal regulator will encroach on the jurisdiction of regulators such as the DGMS and the various pollution control boards constituted under the Air and Water Acts. However, vesting these functions with a coal regulator need not necessarily have a detrimental effect.As Sengupta notes, there should ideally be one single regulator that subsumes different regulatory and facilitating functions. All the functions outlined are essential functions and processes within the coal sector and would be best left to a single regulator. It would be more efficient to haveone regulator overseeing and regulating all sector functions rather than having multiple actors set out different standards. Firstly, the resources of the DGMS and various pollution control boards would be stretched thin if they had to perform the stated inspections on a regular basis, in addition to their ordinary duties. Secondly, it would make compliance with standards easier as the layers of regulation are fewer, and having fewer regulators would mean fewer conflicts between standards as they are likely to be harmonious. This, however, does not mean ousting the jurisdiction of the DGMS and other bodies. 

One can look at examples such as the Telecommunications Regulatory Authority of India (created by the TRAI Act, 1997) and the Central Electricity Regulatory Commission (created by the Electricity Act, 2003) as examples to draw inspiration for a coal regulator’s creation. One might also look at international regulatory bodies such as the United Kingdom’sCoal Authority, which performs similar functions as the ones argued for in this paper. 

The statute creating the coal regulator can have provisions whereby the coal regulator is mandated to submit reports on the safety and environmental aspects to the above authorities (in addition to Parliamentary oversight). These authorities would then engage in a consultative process with the coal regulator to address any deficiencies. This would mean these other authorities would only take on a collaborative supervisory function rather than directly being involved in the monitoring process. This process of regulatory collaboration would also allow for each of the involved bodies to share expertise, develop harmonious standards through the consultation process, and be better placed to tackle issues of risk and non-compliance,similar to OECD (Organisation for Economic Co-operation and Development) recommendations on international collaboration. 

There is no denying that the coal sector is important for India. Coal is the lifeblood of our electricity requirements. However, there are several social costs attached to coal. Giving the free market, unbridled reign over the coal sector is sure to exacerbate the existing fault lines. The Government has historically remained inactive in establishing a regulator for the sector. This inactivity was consequently punished with the Coal Allocation Scandal of 2012. Let us hope this inactivity does not continue, lest history repeats itself.

About the Authors 

Mr. Shivjeet Parthasarathy is a 4th Year B.A. LL.B. student at the Jindal Global Law School. He is interested in Constitutional Law, Administrative Law, and Regulatory Theory..

Editorial Team 

Managing Editor: Naman Anand 

Editors-in-Chief: Jhalak Srivastava and Muskaan Singh 

Senior Editor: Hamna Viriyam 

Associate Editor: Harshita Tyagi

Junior Editor: Kaushiki Singh

Preferred Method of Citation  

Shivjeet Parthasarathy, “Adopting a Risk-Based Regulatory Approach to the Indian Coal Sector” (IJPIEL, 15 August 2022) 


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