In his budget speech on Thursday, Indian Finance Minister Palaniappan Chidambaram said imported steam and bituminous coal, both used by power producers, would attract a customs duty and a countervailing duty (CVD) of 2% each.

“My greater worry is the current account deficit,” he said.

“The CAD continues to be high, mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold and the slowdown in exports.

“This year – and perhaps next year too – we have to find over $US75 billion to finance the CAD.”

Higher coal taxes will raise the generating cost of electricity companies, which have been forced to increase coal imports after local supplies fell short of demand.

“Coal imports during the period April-December 2012 have crossed 100 million tonnes,” Chidambaram said.

“It is estimated that imports will rise to 185 million tonnes in 2016-17.”

CVD is a tax placed on imported goods that are being subsidized by the importing government, which helps to even the playing field between domestic producers and foreign producers receiving subsidies.

“Steam coal is exempt from customs duty but attracts a concessional CVD of 1%,” Chidambaram said.

“Bituminous coal attracts a duty of 5% and CVD of 6%.

“Since both kinds of coal are used in thermal power stations, there is rampant misclassification.

“I propose to equalise the duties on both kinds of coal and levy 2% customs duty and 2% CVD.”

Bituminous coal has a higher heat value but Indian power producers mostly prefer steam coal, according to Bloomberg.