India's Growth Spurs Coal Demand

Beyond domestic supply: why India needs imported coal

India's 2025-26 Union Budget introduced substantial spending increases aimed at boosting the economy. The budget includes a 9.8% increase in capital expenditure, amounting to an additional US$135 billion allocated primarily for infrastructure development, including roads, railways, and urban infrastructure – a boon for power and steel demand. Along with significant personal income tax cuts for the middle class, effectively placing an additional US$12 billion into their hands, these combined measures are expected to stimulate economic growth and job creation.?

Economic indicators further support this outlook. The International Monetary Fund (IMF) projects India's real GDP growth at 6.5% for 2025, while the Reserve Bank of India (RBI) has forecasted a growth rate of 6.7% for the fiscal year 2025-2026. These optimistic projections, alongside recent monetary policy easing, are expected to lower borrowing costs and encourage investment across various sectors.?

India relies on coal-fired power to meet 77% of its generation demand. India has over 29GW of planned added coal-fired power underway, while less than 500MW is slated for retirement in 2025. Likewise, 66% of steel is produced via India’s relatively modern fleet of BF-BOF, while 34% is produced via EAF. Either way, it will be a mix of domestic and imported coal that will power India’s economic growth.?

While Coal India and its subsidiaries have increased domestic production in recent years, production and rail dispatches can fluctuate (see chart below), and India will need to increasingly rely on imported coal supply to meet growing demand.

Commodity Insights expects thermal coal imports to rise from 161Mt in 2024 to an estimated 170Mt in 2025.

Despite substantial budgetary allocations aimed at boosting domestic coal production, the persistent demand from the power, cement, and industrial sectors suggests that imports will continue to play a crucial role in meeting the country's energy needs.?

The government's focus on infrastructure development, coupled with enhanced consumer spending, is expected to elevate steel production, thereby increasing the demand for metallurgical coal. Metallurgical coal imports are projected to increase from 62Mt in 2024 to 70Mt in 2025, driven by the anticipated surge in infrastructure projects and manufacturing activities and penalties on low cost imports from China and Vietnam.??

So what does this all mean? In Commodity Insights view, the 9.8% increase in capital expenditure, signals significant opportunities for companies to supply to the cement, power, and steel sectors. This could lead to increased demand for raw materials in 2025, and supports our view that increases in both metallurgical and thermal coal imports will be key to augmenting domestic coal production to meet the demands of a growing economy.?

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