Adaptive State Capitalism in the Indian Coal Industry The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Chandra, Rohit. 2018. Adaptive State Capitalism in the Indian Coal Industry. Doctoral dissertation, Harvard University, Graduate School of Arts & Sciences. Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:41127494 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Adaptive State Capitalism in the Indian Coal Industry A dissertation presented by Rohit Chandra to The Harvard Kennedy School in partial fulfilment of the requirements for the degree of Doctor of Philosophy in the subject of Public Policy Harvard University Cambridge, Massachusetts April 2018 © 2018 Rohit Chandra All Rights Reserved José A. Gómez-Ibáñez Rohit Chandra Adaptive State Capitalism in the Indian Coal Industry Abstract Adaptive State Capitalism refers to a set of characteristics (bureaucratic discretion, operational capacity, resource self-sufficiency, political influence, and ability to push for rule changes) manifested in state-owned enterprises (SOEs) which remain commercially viable and continue to hold market share in their respective industries. Adaptive SOEs create operational, financial and political space for themselves in the face of evolving external environments. Given the wide range of SOE performance observed across the developing world over the last few decades, this dissertation provides a framework to think about why certain SOEs persist and succeed, while others remain in inefficient, loss-making equilibria. To illustrate this framework, this dissertation focuses on one large SOE in India: Coal India Limited and its organisational history, showing how it gradually manifested these various adaptive characteristics over its more than four decades of existence. This adaptive history of Coal India is divided into four functional areas where adaptation was most prominent: federal politics, finance, labour and local politics, and technology. Through each of these areas, the complexity of Coal India’s relationships emerges, as does the importance of bureaucratic entrepreneurs initiating changes from within. This dissertation argues, through the case of Coal India, that within state capitalist systems, SOEs themselves have considerable room for endogenous change; external conditionality and mandates are much more likely to succeed when SOEs themselves have the capacity, resources, and leverage to pursue such agendas. Gaining these characteristics is non- trivial, and the chapters of this dissertation illustrate how Coal India worked within the Indian iii political and economic system to gain many of the adaptive characteristics that have made it a successful commercial organisation today. At the broadest level, this narrative, which draws from a range of interviews, archival sources, and historical data, is a story about a large industrial SOE, its unique position within India’s economic and political system, and its struggle to succeed at both its core mission (coal production) and the range of other social and welfare obligations that typically accompany state-ownership. By establishing the SOE as a key developmental actor, this dissertation challenges traditional notions regarding the inefficiency or lack of productivity of SOEs. iv Table of Contents Figures and Tables vi Acknowledgements vii Ch. 1: Adaptive State Capitalism 1 Ch.2: Public Sector Enterprises and Indian Federalism: The Case of Coal 36 Ch.3: Financial Adaptation 87 Ch. 4: Labour and Local Politics 131 Ch.5: Technological and Organizational Evolution of the Indian Coal Industry 176 Ch.6: Conclusion 215 Note on Sources 229 Appendices 230 v Figures and Tables Figures Figure 1.1: Coal India’s Operational Area Figure 2.1: Institutional Configuration of Coal Industry (Pre-Nationalization, Nationalization to Liberalization, and Post-Liberalization) Figure 2.2: State Level Coal Production (1951-2010) Figure 2.3: Indian Coal Production: 1965 and 2007 Figure 2.4: Coal India Payments to State Governments vs Production (1981-1990) Figure 2.5: Jump in Royalties to States on Non-Coking Coal (1971-2001) Figure 2.6: Expansion of Road-Based Coal Transport Figure 2.7: Explosion in CIL's Royalty Payments to States (1999-2017) Figure 3.1: Increases in Non-Wage Costs of CIL (1975-2012) (Percentage of Overall Expenditure) Figure 3.2: Burgeoning Losses of Eastern Subsidiaries (Before CPRA) (1975-1991) Figure 3.3: CIL's Financial Recovery (1975 - 2012) Figure 3.4: Financial Divergence Between Eastern and Western Subsidiaries (1975 - 2012) Figure 3.5: Jump in BCCL Capital Outlays (1990-2013) Figure 3.6: Improvement in Revenue Realization of BCCL in Opencast Mining (1990-2013) Figure 4.1: Employment vs Coal Production (1951-1975) Figure 4.2: Population Growth Around Coal Belt (1975 to 2015) Figure 4.3: Economic Activity Near Coal Belt (2006) Figure 4.4: CIL Subsidiary Employment (1976-2012) Figure 4.5: CIL Departmental vs. Contracted Coal Production Figure 5.1: A Stamp Issued in 1984 when India first hosted the World Mining Congress Figure 5.2: Project Black Diamond Projections vs. CIL Actual Coal Production (1975-86) Figure 5.3: Longwall Mining Schematic Figure 5.4: Opencast Vs. Underground Coal Production (1975-2012) Figure 5.5: Costs of Underground vs. Opencast Mining in CIL Figure 5.6: Cost vs. Sale Value of Coal by CIL (1975-2013) Figure 5.7: Surface Miner at Gevra Mine Figure 5.8: Divergence in Subsidiary Productivity (1975-2012) Figure 5.9: Dominance of Road-based Transport in Coal (1999-2015) Figure 5.10: Price Comparison of Coal Tables Table 1.1: Comparative Adaptation between SOEs and Private Enterprise Table 2.1: Planned vs. Actual Coal Production Table 2.2: Ministers of Indian Coal Sector Post-Nationalization Table 2.3: Screening Committee Details Table 2.4: Federal Adaptation by CIL Table 3.1: Increasing Amounts Owed to CIL (1991-1996) Table 3.2: Financial Adaptation by CIL Table 4.1: Local Political Adaptation by CIL Table 5.1: Technological Adaptation by CIL Table 6.1: CIL’s Exceptional Constraints Table 6.2: Can Other Organisations be Adaptive? vi Acknowledgements The seeds of this dissertation were planted in Fall 2010, when I was working at the Centre for Policy Research (CPR) in New Delhi. At the time, CPR had just been asked to contribute to a government report reviewing India’s natural resource allocation policies. In all his wisdom, Partha Mukhopadhyay decided to assign me, a neophyte research assistant broadly interested in energy policy, the responsibility of curating the coal chapter of this report. This began my prolonged engagement with the industry. My affinity to the industry may have something to do with my Bihari roots. But I am eternally grateful to Partha for irreversibly associating me with the black diamond. His early mentorship and trust in my abilities gave me the confidence to work on this larger project. The coal industry’s trimurti consists of the Coal Minister, the Secretary of the Ministry of Coal, and the Chairman of Coal India Limited. When these three officials are aligned in their thinking, the industry takes strides and moves forward. For me, mentorship has its own trimurti. In addition to Partha’s guidance, Devesh Kapur and Pratap Bhanu Mehta were incredibly supportive of me in my early career. As an ambivalent engineering student at the University of Pennsylvania with a nascent interest in politics and economics, Devesh Kapur is largely responsible for my corruption towards the social sciences. Taking his classes as an undergraduate student, working for him as a research assistant, and staying in the intellectual orbit of the Centre for Advanced Study of India (CASI) has shaped my thinking, skills, and ambitions in directions I could not have imagined. Devesh’s constant support during both good and bad times has been invaluable, as has his continued generous mentorship over the last decade. Pratap Bhanu Mehta was everything one would hope for in a first boss. As a Research Associate at CPR I had access to one of the most fertile intellectual environments for policy research in India. Being at CPR was a whirlwind education about the most pressing policy vii debates in the country. Surrounded by exceptional faculty and talented young researchers, there was an optimism and urgency which made CPR an exciting place to work. Pratap led CPR by example, and his fierce independence, range of intellectual engagement and generosity with younger researchers are all characteristics which I can only hope to emulate over my career. At CPR, I was lucky enough to work with various faculty. Ambassador Shyam Saran’s insights from his experience within the Indian government on foreign policy, international security, and energy helped me appreciate the complexity of the Indian state early on. Srinath Raghavan’s encyclopaedic knowledge of domestic and international archives were immensely helpful as I started putting together this project. Navroz Dubash’s projects on climate change in India, the regulatory state in the Global South, and state political economies of electricity were great exposure to topical academic collaboration across disciplines. His willingness to entertain my misguided early ideas on energy policy, suggest further reading, and patiently reason with