Revealed: The real reason why Coal India unions were on a strike

Jan 8, 2015

- By Vivek Kaul

Vivek Kaul
Late yesterday evening, the trade unions representing Coal India workers called off their five day strike."Consequent to the intervention by Mr Piyush Goyal, Union Miinister for Coal, strike by Coal India workers called off,” Coal secretary Anil Swarup said on Twitter.

The meeting of the trade unions with the coal minister Piyush Goyal lasted for over six hours. "The strike has been called off,"Lakhan Lal Mahato, leader of All India Trade Union Congress (AITUC), one of the five trade unions supporting the strike told the Press Trust of India (PTI) after the strike was called off. "Mahato, however, did not share the details of the terms and conditions of the agreement reached between the government and the unions,” PTI reported. The real damage of his agreement (if any) will be revealed only once the details of the compromise agreed upon come out.

The strike lasted two days and led to a dramatic fall in coal production. A Reuters report quotes a Coal India official as saying that "Coal India produced 645,000 tonnes on Tuesday (January 6,2015), less than half of its usual daily output at this time of year.”

The unions were protesting the government's decision to disinvest its shares in Coal India and at the same time they don't want any private participation in the coal sector in the country.

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The government wants to sell 10% of its stake in Coal India, which will help the government bring down the fiscal deficit. The fiscal deficit for the period April to November 2014 was at 99% of the annual target. Fiscal deficit is the difference between what a country earns and what it spends.

The government currently owns 89.65% of Coal India and even after selling a 10% stake it will continue to own almost 80% of the company, which is good enough to continue to have managerial control over the company. Hence, the government is not selling out of the company lock, stock and barrel.

Coal India was and will continue to be a government owned company. So what is it that the trade unions really feared? For that one needs to take a look at the following table.

Coal India
Year Total employee benefits expenses (in Rs crore) Number of employees Average employee compensation
2010-2011 19,851.78 39,0243 Rs 5.09 lakh
2011-2012 26,387.42 37,7747 Rs 6.99 lakh
2012-2013 27,320.78 36,4736 Rs 7.49 lakh
2013-2014 27,769.43 35,2282 Rs 7.88 lakh
Source: Coal India Annual Report 2013-2014

As is clear from the above table the average employee compensation for Coal India has gone up from Rs 5.09 lakh in 2010-2011 to Rs 7.88 lakh in 2013-2014, an increase of 55%. What needs to be kept in mind is the fact that 85% of the employees of Coal India are workmen. Their jobs fall largely in the semi-skilled category.

In yesterday's column I had said that the well performing subsidiaries of Coal India, like Mahanadi Coalfields and Northern Coalfields have been doing well primarily because they have been outsourcing the excavation of coal. Interestingly, coal experts point out that the firms to which the excavation of coal is outsourced hire workers at around one fourth the cost of what Coal India employees get paid. And that makes the entire exercise of excavating coal through outsourcing more productive. What this tells us clearly is that Coal India employees are paid extremely well.

Now look at the following table which has the average employee compensation of ICICI Bank over the years.

ICICI Bank
Year Total employee benefits expenses (in Rs crore) Number of employees Average employee compensation
2010-2011 2,817 56,969 Rs 4.94 lakh
2011-2012 3,515 58,276 Rs 6.03 lakh
2012-2013 3,893 62,065 Rs 6.27 lakh
2013-2014 4,220 72,226 Rs 5.84 lakh
Source: ICICI Bank annual reports

ICICI Bank is the largest private sector bank in the country (in terms of total assets). It has more or less a 100% skilled workforce. Nevertheless, the average employee compensation of the bank in 2013-2014 was only at Rs 5.84 lakh.

Hence, an average Coal India employee makes 35% more than an average ICICI Bank employee. This is surprising given that Coal India has a largely a semi-skilled workforce. As on December 1, 2014, out of a total workforce of around 3.38 lakh, the total number of workmen were at 2.86 lakh. And these Coal India employees get paid significantly more than they should be, given the skill-set that they have.

The trade unions are essentially trying to protect this. Their big fear is that if private companies are allowed to commercially mine coal (as the recently re-promulgated Coal Mines (Special Provisions) Ordinance allows for), salaries in the organised coal sector will go down. Private companies will have no reason to pay the kind of compensation that Coal India pays its workers. As mentioned above outsourced workers get paid one fourth of what Coal India workers make. Hence, trade unions are basically trying to protect this interest of the organised coal labour.

In the process they are hurting the interests of the country. Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. The production of coal hasn't kept pace with demand. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%.

The per employee productivity of Coal India is very low in comparison to its global peers. A Reuters news-report points out that: "Coal India digs out about 1,100 tonnes of coal per employee a year, compared with 36,700 tonnes per employee at U.S.-based Peabody Energy and 12,700 tonnes per employee at China's Shenhua Energy.” What Coal India needs is some competition and that is exactly what allowing private companies to commercially mine coal will do.

As Partha Bhattacharya, a former Chairman of Coal India put it in a September 2014 column in The Indian Express: "With multiple players that have both bandwidth and competence, a competitive scenario is expected to emerge sooner than later. Besides turning the current situation of acute coal shortage into one of abundance, competitive pressures are expected to bring prices well below the imported coal price, since the wage cost is likely to remain far lower in India than elsewhere, whereas productivity is expected to converge to international levels.”

To conclude, India clearly needs more coal. And that is only going to be possible if more companies are allowed to produce coal. But the labour unions representing the workers of Coal India do not want that. In the process the country needs to import coal at a price which is higher than the price of the coal produced domestically. Also, the country ends up using precious foreign exchange.

In fact, if India does not produce more coal in the years to come, the coal imports will only go up.

What does that really mean? It means that increasing Indian coal imports will help create jobs in foreign countries. Ultimately, the unions representing the workers of Coal India will be responsible for this. And this is clearly not a happy thought.

How do you think the government should deal with striking public sector unions? Post your comments or share your views in the Equitymaster Club.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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13 Responses to "Revealed: The real reason why Coal India unions were on a strike"

D U Krishna Rao

Jan 17, 2015

Productivity linked incentives should be the basis for all our activities to be competitive in all the fields.

Like 

Kumbesh

Jan 14, 2015

Though an interesting article with various facts the statistics provided here could be misleading. With respect to compensation comparison should have been made with similar industry rather than a bank. Ex: productivity information is compared with similar industry outside of India, but what about compensation?

For productivity increase are we using modern technologies in par with international practice? Such details would benefit readers.

Based upon information it is difficult to understand why we need to import coal when much reserves are available in our country. Yes, outsourcing would definitely help to speed up things(to make the supply to match the demand to certain extent). However in this process utmost care needs to be taken not to disrupt employee benefits as they form the pillars for any organisation. In the end all the development we talk about is for the welfare of the people and a proper balance needs to be striked out.

Like (1)

Ameya

Jan 12, 2015

I cannot believe that govt coal miners have higher pay grade than IAS officers.

For eg: District collector in a district or Special Secretary in the state government or a Director in the central government INR37,400-INR67,000 plus grade Pay of INR8700
(source wikipedia)

Like (1)

cssrihari

Jan 12, 2015

Dear Mr.Vivek,The Communist,socialist approach left Russia and China quite quickly but it is still surviving in India as they yet to damage the total economy of the country.These Union attitude is same as to harness maximum benefit with minimum responsibility at the cost of nation benefit.Unless the whole thing is mechanized and the part of the workforce re-trained to take up mechanized managed of coal excavation and supply.Rest needs to be either given option of Voluntary Retirement or needs to be trained and shifted for other job nature with skill.Otherwise they may loose their job permanently once the private coal miners produce the coal at a competitive price than Coal India and make Coal India un viable in long term.
Regards,
C.S.SRIHARI.

Like (1)

tejas

Jan 12, 2015

I agree with Jay. If out sourcing is the solution for inefficiency, why not outsource MPs, MLAs, Ministers and Babus? They are having the highest salary and perks and they are the most inefficient lot of this country.

Like (1)

Subramanain Ram

Jan 8, 2015

Comparisons should be between two identical industries.Comparisons between Coal India & ICICI Bank did not seem appropriate. Agreed, the employees of Coal India may be semi skilled. Is the working conditions same ? ICICI Bank is located mostly in Urban & Metropolitan centres where all the facilities are available. What about Coal India ?

Like (1)

Pratapa Gadigi

Jan 8, 2015

Your assessment of the situation is not entirely balanced. it is true that the employees of Coal India are not producing as they should have been. But taking the salaries of the exploited outsourced employees (contract employees) as fair is definitely not fair. These unorganized workers are exploited because of poor legal protection to their jobs. There needs to be a balance in the situation; whether to encourage exploition by organized labour or to encourage exploitation of unorganized labour by nmanagements, which happens more in the private sector.

Like (1)

S Joshi

Jan 8, 2015

Its difficult task to deal with Unions. But needs to be done. Our PM Modiji is capable of handling such tasks and needs to done ruthlessly once and for all. Our people are used to take easy all things and productivity of people is very low when their jobs are secured. Need to strike balance. In India there is lot of inequality in Salaries. Something needs to be done. Indians need to increase productivity by large no.

Like (1)

ram gupta

Jan 8, 2015

it has to be a gradual process. go on selling govt. stake till it comes down to 51%. organised labour needs to be handled with care and firmness. they also cannot afford to loose wages by remaining on strike for long. they should know the govt's resolve to introduce privatisation and improve efficiency.

Like (1)

Sanjeev Kumar Singh

Jan 8, 2015

While I admire Mr Vivek Kauls views on various subject but in his article writeen over two days he has shown marked biasness towards people who want to fight for their rights. Solutions and conclusions are too simplistic.
1) Outsourcing is cheaper , hence should be resorted. Outsourcing is cheaper not because of efficiency they bring in, It is because they pay compensations which are very low . Hence in opinion there should not be any proper compensation to working people but private owners , bureaucrats and mafia should enjoys cream by theft of minerals . Mr Kaul should provide data on that also. But he cannot because it is not reported and hence not captured
2) Data on Salary provided is only an average and hides significant deviations between high and low paid jobs and hence cannot be concluded that low skill jobs are being paid a higher salary.
4) Significant payments in private sector are made through heads which are not Employee benefit expenses. This is to avoid taxes on such components Hence comparing by picking up data from Financial Statements are totally misleading
3) There are no. of reasons for low productivity and production . The main reason being theft on massive scale which takes place at these mines. Mr. Kaul might not be aware that there is a parallel market for coal and coals are being offered at premium, which can run giant power plant on regular basis . All these are not reported production. These are not going to go away by privatizing the mines, rather it will increase significantly. Actually it will only legitimize it and the owners of such mine can actually make tons of money which can be useful for putting of Giant Advertisements and fund for PM like MODI.

4)Since Mr Kaul happens to be a learned man he might be aware of the term Resource Curse. For refreshing his memory I would like to repeat "The resource curse, also known as the paradox of plenty, refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural" This is true for all those people who are engaged in low and low skilled job in such mines who happens to be local people whose lands have been taken away for such mines. With passage of time such people are becoming aware and fighting for their right .

Since I didn't find his article to be balanced , I felt like responding. This particular article in two series are complete distortion and one sided.
No doubt efficiency need to be improved by bringing new technologies but it should ne at the cost of human well being. Any development which is devoid of passion for people is not sustainable. Hence I would suggest Mr Kaul to be more objective in his approach

Like (1)
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