M a r c h 14, 1964
control the estates. M e a n w h i l e , in
Central Java, a r e a l tragedy in the
famine affecting up to two m i l l i o n
people seems to have attracted m u c h
less attention than Malaysia from
the busy politicians.
W i t h , Malaysia claims, twenty
breaches of the ceasefire,, w i t h Sub-
andrio c l a i m i n g that war is the
only alternative to Malaysia accept-
i n g a peaceful settlement (that is,
giving i n ) , there appears l i t t l e
Economies of Scale in Coal
Our Calcutta Correspondent writes :
FOR the first time in many years,
the I n d i a n M i n i n g Associations
A n n u a l Meeting last week in Cal-
cutta was held at a time when coal
supply had overtaken demand,
Reacting to this new situation, the
I M A c h a i r m a n , S h r i Pran Prashad,
attempted to expound a new p o l i c y
for coal which pleaded, in sum, for
fuller recognition of the economies
of scale.
The fact that I M A speaks for the
bigger units of the industry may i n -
cline one to dismiss this view as
motivated by self interest. This
would he unfortunate; notwithstand-
i n g the coincidence between I M A ' s
interest and the plea for economies
of scale, there is no doubt that Pra-
shad is m a k i n g a point of substance
when he says: "The production of
fuels at the lowest possible cost can
in modern conditions be achieved
only by units capable of u l t i m a t e l y
producing upwards of h a l f - a - m i l l i o n
tonnes of coal per a n n u m " .
Of India's 848 coal mines in 1961,
o n l y 25 had an annual production
above 300,000 tons, 52 were in the
2 0 0 , 0 0 0 . 300,000 ton class and
there were another 107 above the
100,000 mark. In other words, very
few of today's m i n i n g operations
meet the v i a b i l i t y c r i t e r i o n suggested
by Prashad. f r o m w h i c h it follows
that a major reorganisation of the
structure of the industry w i l l by
needed to advance towards the
500.000 ton o p t i m u m .
Is this reorganisation unavoid-
able ? The technological answer to
this must he an emphatic 'yes'. The
I n d i a n p r o d u c t i v i t y team which re-
ported in 1961 cited the example of
the Nord-Pas-de Calais coalfield in
France w h i c h was worked by 114
m i n i n g units before the war to pro-
hope of a n y t h i n g but a steady deteri-
oration, ending either in accidental
war ( w h i c h , at the moment, Sukarno
probably does not w a n t ) or the
collapse of the Indonesian regime —
or both. The U n i t e d States has now
appealed for a strengthening of the
ceasefire on the basis of a three
point P h i l i p p i n e p l a n , the f i r s t
plank of w h i c h is 'disengagement' or
the w i t h d r a w a l of Indonesian troops
and guerillas from Malaysian Bor-
duce 23 m i l l i o n tons. After nationa-
lisation a t the e n d o f W o r l d W a r I I ,
operations were regrouped into 76
units w h i c h w i l l be further reduced
to 41 by 1965 w i t h an average out-
put of 2,500 tons per day. Even so,
as much as half of the output w i l l
b e obtained f r o m only I I units pro-
ducing 5,000 tons per day.
Going by international experi-
ence, the team recommended that
new m i n i n g enterprises should aim
at an output of "at least 2,000 to
3,000 tons a d a y " —- roughly 0.6
to 0.9 m i l l i o n ton a year, But instead
of f o l l o w i n g t h r o u g h and a p p l y i n g
its conclusions to existing operations,
the team merely recorded the v i e w :
" T o conserve the coal reserves,
the nationalised French industry
carried out reorganisation and amal-
gamation of smaller units w i t h con-
siderable success. It is recommended
that the work of amalgamation,
launched in the I n d i a n Coal M i n i n g
Industry, may be carried out w i t h
greater speed so that small mines
may be consolidated into larger
units and thereby enable the achi-
evement of higher p r o d u c t i v i t y and
a larger percentage of extraction'".
This is a generalised prescription
which evades m a k i n g a precise for-
mulation about o p t i m u m size in
keeping w i t h the requirements of
modern technology. In this matter
the only authoritative view so far
available is the 1956 report of a
c o m m i t t e r on amalgamation which
defined the m i n i m u m viable size as
72.000 tons a year, scaling the
figure d o w n f r o m ' 120.000 that it
had itself proposed at. an earlier
stage of its work. Even if one
applies the lower criterion, 569 our
of 848 collieries w o r k i n g in 1961
were uneconomic. These small units
accounted for 21 per cent of the
THE ECONOMIC WEEKLY
neo, precisely the p o i n t demanded
by Malaysia since negotiations be-
gan and refused equally adamantly
by Indonesia.
How the Indonesian economy
manages to lurch along under the.
combined strain of its President and
his foreign p o l i c y , is of less interest
than tile sad fact that, for no very
substantial reason, the people of
Malaysia and Indonesia have to bear
yet a further strain.
year's total production, an average
of 20,000 tons a year.
V o l u n t a r y amalgamation as a
solution has not worked at a l l .
A c c o r d i n g to the L o k Sabha's Esti-
mates Committee which reported in
1963, actual amalgamation has
taken place in o n l y 25 cases out of
the 43 schemes approved.
The inadequate response necessit-
ated proposals on an area-wise basis,
but these too, according to the Esti-
mates Committee, had not made
much headway. This prompted it. to
say that the Government, which had
on more than one occasion expressed
its acceptance of the p r i n c i p l e of
amalgamation, should take some
positive action" and have this
necessary reorganisation completed
expeditiously.
But this o n l y begs the question.
Amalgamation w i l l make no pro-
gross unless the Government takes
powers to compel mine-owners.
Otherwise, the affluent private gentle-
men who are sitting on valuable
coal reserves are u n l i k e l y to be per-
suaded to merge into larger entities.
Apart from a n y t h i n g else, a large
unit w i l l maintain regular books of
accounts and show greater deference
to laws and regulations — none of
which w i l l fit in w i t h the free boot-
i n g instincts w e l l developed among
this class of owners.
W h i l e amalgamation, v o l u n t a r y or
otherwise, may help us to put the
smaller collieries on a slightly more
viable basis than is now the case,
it does not. however, take us very
far towards the technological opti-
m u m enunciated by Prashad. His
o w n group. Bird & Heilgers, had 9
collieries in 1961 producing 2.23
m i l l i o n tons while Andraw Yule, at
the top of the table, had 21 units
w i t h aggregate annual raisings of
501
March 14, 1964
4.38 m i l l i o n tons. By 1966 when
they complete their approved T h i r d
P l a n expansion programmes, the
average output per u n i t w i l l still be
o n l y 372,000 and 260.000 tons in
the t w o cases.
Prashads " o p t i m u m size" should
he read, therefore, as a plea to let
such private units expand further to
make the most of modern technology.
L e t t i n g the b i g grow yet bigger may
not be an entirely palatable sugges-
t i o n b u t is there any p r a c t i c a l alter-
native in a situation where bigness
happens to be synonymous w i t h pro-
gress? Prashad argues that the ex-
pansion of p r o d u c t i o n at the rate
needed to sustain the economy's long-
t e r m plans cannot be achieved w i t h -
out reliance on mechanisation. In
any ease, mechanisation alone can
Weekly Notes
Federation Perturbed
A T T E M P T S to get the Congress
Party to spell out the specific p o l i -
cies w h i c h w i l l take it to its social-
ist goals have clearly p e r t u r b e d the
business c o m m u n i t y . It was not lack
of ideology w h i c h was responsible
f o r the disappointing economic per-
formance of the last thirteen years,
L a l a Bharat Ram asserted w i t h fer-
vour in his Presidential address to
the 3 7 t h A n n u a l Session of the Fe-
deration of I n d i a n Chambers of
Commerce and i n d u s t r y . Obviously,
this had reference to the c r i t i c i s m ,
now7 voiced even by sections w i t h i n
the Congress, that the socialist con-
tent of the Government's economic
p r o g r a m m e is at best microscopic.
Businessmen are also disconcerted
by the efforts of a group of Cong-
ressmen to pressurise the Govern-
ment to move leftwards. ( O n the
day the F I C C I Session opened in
New D e l h i also began a "seminar"
on nationalisation of hanks whose
sponsors i n c l u d e d two p r o m i n e n t
Congress Members of Parliament. I
Thus, one of the resolutions passed
by the F I C C I eloquently expressed
the F e d e r a t i o n s sorrow that "certain
sections of p o l i t i c a l o p i n i o n are assi-
duously p r o p a g a t i n g the adoption of
means w h i c h w i l l not result in eco-
n o m i c welfare or in p r o m o t i n g the
democratic way of life and, worse
s t i l l , are commending the pursuit of
502
ensure the rise in p r o d u c t i v i t y need-
ed, first, to offset the tendency of
costs to rise w i t h t i m e as m o r e ac
cessible deposits get worked out,
and. second, to satisfy the miner's
r i s i n g aspirations. None of these
points lose v a l i d i t y for the fact that
they happen also to suit the book
of the biggest private units.
To suggest that the tasks of the
future can be left to the N C D C w i l l
be to overlook that the best coal
deposits — 80 per cent of the reser-
ves of selected grades — are held
by the private sector. One may, of
course, nationalise the lot but short
of that there is no option b u t to let
the private units go ahead w i t h
technologically sound expansion
plans in existing and contiguous
workings which ran he operated as
these means as if they were ends in
themselves".
It was this confusion between ends
and means w h i c h was, according to
the F I C C L responsible for the de-
m a n d for "nationalisation of indus-
try, trade, finance and other econo-
m i c a c t i v i t y " . The resolution rioted
w i t h p a r t i c u l a r chagrin "the demand
in certain quarters for nationalising
the r e m a i n i n g j o i n t stock banks so
that, along w i t h the State Bank and
its subsidiaries, the entire field of
b a n k i n g m a y become a Government
m o n o p o l y " , T h i s demand the resolu-
t i o n called upon the p u b l i c to reject
because it w o u l d e l i m i n a t e competi-
tion in b a n k i n g , lower standards of
service to depositors, replace the
present ""flexibility of the b a n k i n g
system w i t h bureaucratic r i g i d i t y
and open up avenues for p o l i t i c a l
i n t e r f e r e n c e - — a l l these in t u r n lead-
ing to s l o w i n g d o w n of the rate of
g r o w t h of industry and trade and
postponement of the ultimate end
of economic welfare.
A n d it is not nationalisation alone
which can be disastrous; coopera-
tives are only a s l i g h t l y lesser
danger. The F I C C I considered it ne-
cessary to " c a u t i o n the p u b l i c "
against those who advocate "indis-
criminate extension of the coopera-
tive f o r m o f organisation i n f i e l d s
of a g r i c u l t u r e , s m a l l scale and pro-
cessing industries and wholesale and
r e t a i l trade. The country's experi-
THE ECONOMIC WEEKLY
one u n i t . N e w w o r k i n g s m a y also
be p e r m i t t e d because the size of the
task in coal is so large t h a t it can-
not be successfully tackled w i t h o u t
decentralised efforts. B u t care must
be taken to see that new licenses
meet the test of v i a b i l i t y .
Acceptance of this approach to
expansion in coal has obvious i m -
plications f o r price p o l i c y . The
benefit of incentives should go o n l y
to those w h o are p u t t i n g money i n t o
expansion or modernisation accord-
i n g t o approved programmes. A n y
f o r m of assistance w h i c h b r i n g s an
undeserved bonus to those sitting
pretty should be avoided because it
is not o n l y wasteful but also h a r m -
f u l in the sense that it prolongs their
pointless existence.
ence so far does not indicate the
a d v i s a b i l i t y of an extension of the
cooperative sector . . .". True, past
experience has been far f r o m p r o -
m i s i n g , for generally cooperatives
have been perverted by the very ele-
ments they are expected to c u r b a n d
replace — the traders and the busi-
nessmen. But that can h a r d l y be
why the Federation opposes coopera-
tives.
The demand at the F I C C I session
was not j u s t for a better deal f o r
private enterprise, for better profits
and freedom f r o m c o n t r o l ; in effect,
if not e x p l i c i t l y , it was for restric-
tion of State activity in the economy
basically to p r o v i d i n g the conditions
in w h i c h private enterprise can flou-
rish. F o r t u n a t e l y , the Federation is
apparently above a l l t y r a n n y of
words and so it was possible to keep
to good f o r m and argue that such
an arrangement was best calculated
to lead the country to socialism.
Yet, the p o l i t i c a l overtones could
not be e n t i r e l y suppressed. The seem-
i n g l y innocuous idea that the business
c o m m u n i t y should project a better
image of itself l o g i c a l l y led to the
suggestion that efforts should be
made t o "educate" members o f P a r
l i a m e n t and State legislatures and,
further, that (instead of c o n t r i b u t -
i n g to p a r t y funds g e n e r a l l y ? ) se-
lected Congress candidates should
be financed in the elections. It was
left to the Maharashtra i n d u s t r i a l -