The morning after the Supreme Court verdict in the coal scam on Monday, the front pages of newspapers were filled with dire predictions.

The Hindustan Times said that it was a “major blow to India’s steel, power and cement sectors…”  

The Times of India said it “casts a shadow over investments worth thousands of crores…” and “hurt prospects for economic recovery and deepens fears among foreign investors…”

Mint warned that it “could potentially plunge the power sector into a crisis…”

But these fears are exaggerated. Here is why.

Will the verdict jeopardise large scale investments?

In January, the government told the court that investments worth Rs 2.86 lakh crore are at stake in the coal block allocations. But an assessment report prepared by the Ministry of Coal in August 2013 showed that only Rs 8,882 crore have been invested in coal mines. Within these investments, a quick calculation done by showed that nearly half has been made in the coal blocks that are already operational. As of December 2013, 39 blocks had come into production.

The remaining Rs 2.77 lakh crore have been invested in power, steel and cement projects linked to the coal mines. Investments in just 15 end-use projects amounted to Rs 30,000 crore.

Such investments will remain unaffected, if the court restricts cancellation to coal mines that have not begun mining.

In the event of such cancellations, the investments in the projects do not necessarily sink: the projects could be assured of coal supplies from Coal India Limited.

Will the verdict create a crisis in coal supplies?

India’s current demand for coal is around 730 million tonnes. Domestic production amounts to around 560 million tonnes, of which more than 90% is mined by public sector coal companies. Just 46 million tonnes, or less than 10% of India’s coal production, comes from captive coal mines which have been declared illegal by the Supreme Court.

Will the verdict force India to depend on coal imports?

India imports around 170 million tonnes of coal. But not all of the imports are on account of a shortfall: 24% of the imported coal is coking coal, which is scarce in the country. Another 18% is used by projects designed for imported coal. Additionally, in some areas, the government has mandated that projects blend domestic coal with foreign coal. This is because Indian coals have high ash content. The large quantities of fly ash that gets generated while burning coal must be disposed on vacant land which is no longer available. Altogether, a large part of coal imports cannot be avoided even if India increases its coal production.

Will the verdict lead to power outages?

More than 60% of India’s power is generated by burning coal.

This summer, India’s peak demand for power came to 1,42,647 megawatts. Of this, 1,37,352 MW was met, leaving a shortage of just 3.7%.

The shortage is not because the country does not have enough generating stations. In fact, if they were to produce power round the clock, India’s thermal power plants can generate 2,28,721 MW of power every year. The reason they are not doing so is not because they are short on coal. It is because distribution companies cannot afford to buy power due to poor finances and high tariffs.

Will the verdict hurt the cement and steel sector?

The giant share of coal mines were allocated not to the power sector, as is commonly believed, but to steel companies. A handful of blocks were also given to cement companies.

A close look at the allocations show that a majority of companies already had access to coal. Some had existing fuel supply agreements with Coal India Limited. Others had already been allocated coal blocks and yet managed to get more, resulting in a surplus. A case in point, mentioned in the Supreme Court judgment, is the allocation of a surplus of 31.5 millions tonnes of coal to a project of Jindal Steel and Power Limited and its partner company Nalwa Sponge.

With most projects having access to coal, it is unlikely that prospective cancellations will lead to a major setback to steel and cement production.

How can the verdict help the economy?

In the short term, power, steel and cement sectors could face adjustment pangs. But in the long run, a clean up of the allocations would allow India to reassign resources to serious industry players, instead of having them locked up with non-serious ones. This can create a level playing field in the power sector which stands currently distorted due to the asymmetrical price of coal.

The bigger opportunity presented by the verdict is that the government could finally come up with a comprehensive coal mining plan, said Sudeip Shrivastava, one of the lawyers who argued against the allocations in the Supreme Court.

Essentially, this means that instead of indiscriminately allocating coal mines, the government could grade areas for the potential environmental and social costs of mining, and open out those areas first where the costs are lower. This could help avoid the logjams of the past. Under the previous policy, industry was often allocated coal mines in eco-sensitive areas. Even as companies went ahead and made investments, environmental and forest clearances often got stuck. The project cost escalated because of delays. Industry suffered. Often, the government found itself with a no-win proposition where either the investments stood to be imperilled or the environment.

If the government chooses to assess the environmental impact before proceeding with the allocations, such logjams can be avoided. This would not just be good for the environment but also for the economy.