Policy Update
Gowri Kodali
Introduction
CoalSETU gives industrial users greater flexibility within the existing linkage system while retaining auction-based allocation. According to the Ministry of Coal, the window permits coal use for industrial purposes, washing and exports, while barring domestic resale and it also excludes coking coal coal is also excluded. E%e capped at 50 per cent of the linkage quantity.
The policy case, however, will depend on outcomes. In 2025, only 9.97 MT out of 51.77 MT offered in the eighth NRS tranche was booked, while 12.03 MT was booked out of 74.10 MT in the ninth tranche. These figures suggest that allocation flexibility may matter, but they do not by themselves establish that end-use restrictions were the main constraint.
CoalSETU is therefore best viewed as a test of whether fewer end-use restrictions can improve coal utilisation without weakening transparency, competition or domestic supply security. The Ministry itself has linked the reform to better utilisation of coal reserves and lower import dependence.
Background
For industrial consumers, coal linkages matter mainly because they provide some certainty over future supply. Without them, firms may have to rely more on short-term purchases, where both availability and prices can be less predictable. Under the NRS Linkage Auction Policy, 2016, coal linkages were auctioned for different end-use sub-sectors. This was more transparent than administrative allocation, but the buyer still had to operate within the end-use category for which the linkage had been secured.
CoalSETU was introduced at a time when the government was trying to open the coal market further, and domestic production was also increasing. Import data, however, shows that the picture is not very simple. India imported 264.58 MT of coal in 2023–24. This came down to 243.62 MT in 2024–25, a fall of 7.9 per cent. The Ministry of Coal estimated the foreign-exchange savings at about ₹60,682 crore. But between April and October 2025, imports were 149.80 MT, slightly higher than the 149.23 MT recorded during the same months of the previous year.
So higher domestic production does not automatically remove the need for imports. An industrial buyer may still prefer imported coal because of its grade, quality, location, transport cost, or because the required washed coal is not available domestically. The auction figures also raise a similar question. In the eighth NRS tranche in 2025, 51.77 MT was offered, but only 9.97 MT was booked. In the ninth tranche, 74.10 MT was offered, and 12.03 MT was booked.
There can be several reasons for such low booking. The coal on offer may not have matched what buyers wanted in terms of grade, price, mine location or logistics. End-use restrictions may also have reduced the number of firms for whom a particular linkage was useful. This is the space in which CoalSETU becomes relevant. By giving buyers more freedom over the eventual use of linked coal, the policy attempts to make long-term linkages more practical for a wider set of industrial users.
Functioning
CoalSETU functions as an additional option within the existing NRS linkage framework. Any eligible domestic buyer requiring coal may participate, including existing specified NRS consumers, while traders are excluded. Domestic resale is explicitly prohibited.
Coal obtained through CoalSETU may be utilized for:
- The linkage holder’s own consumption;
- Coal washing;
- Other industrial purposes;
- Utilisation within the linkage holder’s company or group companies; and
- Export, subject to a prescribed 50% limit.
Coking coal is excluded from CoalSETU. CoalSETU auctions occur after end-use-specific NRS auctions, utilizing residual availability at the source after fulfilling power sector and designated NRS obligations. Fuel Supply Agreements (FSAs) run up to 15 years, with auctions conducted by CIL and SCCL at or above notified reserve prices to prevent cartelisation. CoalSETU represents a model of conditional flexibility that balances supply security and competitive auctions with flexible end-use and strict limits on domestic trading.
Performance and Current Status
Approved in December 2025, CoalSETU is addressed in the Ministry’s Annual Report 2025–26 primarily as a policy initiative rather than a fully implemented program with outcome data. At this stage, CoalSETU’s primary achievement is institutional: establishing a long-term supply mechanism that reduces end-use rigidity while maintaining essential safeguards.
Future performance must be evaluated across the complete value chain:
| Stage 1 | Stage 2 | Stage 3 | Stage 4 | Stage 5 |
| Coal Offered | Coal Booked | Coal Lifted | Coal Transported | Productive Utilisation |
Impact:
Auction volume alone is an insufficient measure of success. As noted in the background context on underutilization, rigid end-use constraints often leave valid industrial demand unmet. By permitting group-company usage, coal washing, and flexible industrial routing, CoalSETU grants greater operational autonomy while improving washery access to raw coal—key to expanding domestic washed coal availability and reducing grade-related imports. Furthermore, while the export provision provides an alternative revenue stream when economically viable, it must operate as a secondary outlet without compromising domestic supply security. Ultimately, the economic rationale for CoalSETU holds only if flexibility translates directly into higher productive utilization.
Key Challenges and Emerging Issues
1. Supply Security vs. Export Tension
- Policy Friction: A core policy tension arises if domestic coal remains in short supply or continues to be imported while domestic producers export up to 50% of their linkage quantity. Export permissions must be dynamically adjusted relative to national stock levels and import dependence.
2. Risk of Indirect Resale and Market Concentration
- Regulatory Monitoring: Although direct domestic resale is strictly banned, permitted usage across group companies creates a potential loophole for indirect trading. Rigorous audit trails are required to verify genuine internal consumption.
- Large-Player Dominance: The market share of the top linkage holders must be continuously monitored to prevent cartelization or market cornering by dominant corporate conglomerates.
3. Constraints Facing MSMEs
- Barriers to Entry: Small and medium enterprises (MSMEs) face structural barriers including large auction lot sizes, heavy upfront working capital requirements, high rail freight costs, and complex logistics, which may preclude them from participating despite eligibility.
4. Evacuation Infrastructure and Logistical Inflexibility
- Delivered-Cost Viability: National coal availability does not guarantee commercial viability at the plant level. Flexible allocation cannot overcome physical transport bottlenecks such as limited rail capacity, rake shortages, and inadequate first-mile connectivity.
- Contracted vs. Lifted Gaps: Booking a linkage does not equal actual coal movement. The gap between contracted quantities and actual off-take (lifting) remains a primary risk.
5. Nuances in Import Substitution and Environmental Impact
- Grade Matching: Import substitution cannot be measured by total tonnage alone, as many industrial applications require high-calorific or low-ash coal grades not readily available domestically.
- Environmental Sustainability: Market flexibility does not lessen environmental impact. Enhanced flexibility must be accompanied by mandatory coal washing, mine land reclamation, and cleaner transport systems.
Way Forward
1. Integrated Tracking & Traceability
The Ministry should establish a public CoalSETU Dashboard and digital traceability system covering dispatch, rail transportation, receiving entities, group transfers, washing, and export. Greater commercial flexibility must be paired with end-to-end supply chain transparency.
2. Standardized Performance Metrics
To determine whether CoalSETU actively addresses underutilisation, the Ministry should adopt two quantitative tools:
- Linkage Utilisation Ratio (LUR): Measured as LUR=ActualQuantityLiftedContractedLinkageQuantity.
- Import Substitution Scorecard: A grade-specific index tracking products where domestic or washed coal successfully replaces imported coal.
3. Regulatory Safeguards & Market Inclusivity
Export safeguards should rely on objective criteria (e.g., domestic stocks, degree of import dependence) to review permissions during shortages rather than arbitrary discretionary intervention. To protect competition, market shares of top linkage holders should be monitored, with smaller lot sizes or aggregation mechanisms introduced for MSMEs. Finally, CoalSETU allocation must be integrated into coal-logistics planning to align auction design with delivered-coal economics. An independent policy evaluation should follow after several auction cycles.
Conclusion
CoalSETU introduces greater flexibility into India’s coal-linkage framework while retaining competitive auctions. Its safeguards include restrictions on domestic resale, trader participation and exports, along with priority for existing sectoral requirements.
Its performance will depend on whether this flexibility improves actual coal utilisation, competition and import substitution without increasing market concentration or weakening domestic supply security.
More broadly, CoalSETU tests whether reduced end-use restrictions can coexist with transparent allocation and effective oversight. Its outcomes will indicate whether India’s coal-linkage system is moving towards a more market-oriented framework.
References
- On 12th December 2025, the Cabinet approved the CoalSETU window: this involves the auction of coal linkages for various industrial uses and for export to ensure fair access and optimal resource utilisation.
- Ministry of Coal, Government of India, 2026. Annual Report 2025–26.
Ministry of Coal — Annual Report 2025–26 - Press Information Bureau, Ministry of Coal, Government of India, 12 January 2026. Ministry of Coal’s Year-End Review 2025.
PIB — Year End Review 2025 - Ministry of Coal, Government of India, January 2026. Implementation of Reforms and Policy: Coal Linkage Policy and CoalSETU.
Ministry of Coal — Coal Sector Reform and Import Data - Press Information Bureau, Ministry of Coal, Government of India, 2026. Measures for Reduction of Coal Imports, including the role of CoalSETU in increasing availability of washed coal.
PIB — Coal Import Reduction Measures - Ministry of Coal, Government of India. CoalSETU and Other Policy Notifications.
Ministry of Coal — Policy Notifications
Acknowledgements
Author: Gowri Kodali is currently doing a Master’s degree in Economics and serves as a Research and Editorial Intern at the Impact and Policy Research Institute (IMPRI). She is at the same time preparing for the UPSC Civil Services Examination, having a particular interest in public policy, governance and socio-economic development.
Author’s Note
I would like to sincerely thank the IMPRI team for having given me the opportunity to carry out the research and prepare this Policy Update. I am thankful for the advice and feedback they provided, as they contributed to improving both the analysis and the presentation of the article.
Disclaimer
The opinions set out in the article are entirely those of the author and need not necessarily reflect the organisation’s own views or policies.
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