Recent legislative changes to Mines and Minerals (Development and Regulation) Act and draft regulations recognise coal as a tradable commodity and propose delivery-based spot contracts on digital platforms.

But markets don't develop simply because trading is allowed. They develop when participants trust prices and settlement processes. Currently, India's coal sales are dispersed across captive use, imports, bilateral agreements and auctions. This fragmentation risks creating multiple, weak price signals rather than a single, reliable benchmark. A clear policy mandate is needed to concentrate trading volumes on transparent electronic platforms, enabling price discovery based on market depth.

India's electricity and natural gas markets offer both lessons and warnings.

Power exchanges succeeded because their products mirrored physical realities: standardised contracts, centralised clearing and grid integration made prices meaningful.

Gas markets thrived when delivery points, pipeline constraints and balancing rules aligned with trading practices.

However, coal is heterogeneous, with differences in ash content, moisture, calorific value and logistics costs. Exchange(s) assuming uniform coal quality will struggle to attract serious participants. Relying on closed auctions won't address this issue. Instead, quality differences must be defined, verifiable and incorporated into contract design.

Imported coal serves as a practical initial step. At ports, functions such as quality certification, storage and logistics are centrally managed. Introducing a standardised contract for imported coal, with delivery centres at key ports, could provide an early, reliable and globally linked price indicator.

Coal taxation complicates price discovery. Royalties tied to notified prices, GST incidence across users, and state levies fragment delivered costs. Rail freight costs vary with route and availability. Consequently, the same coal can have widely varying effective prices. For a functioning spot market, coal should trade at a neutral base price, with taxes and logistics costs added transparently thereafter. Incorporating these distortions into the traded price blurs market signals and weakens the benchmark's utility.

One of the most important and nuanced considerations is the evolution of the regulatory framework. Coal Controller Organisation (CCO) has played a vital role - overseeing production, managing allocations and ensuring compliance. As markets deepen, the regulatory landscape expands beyond administration to encompass market surveillance, dispute resolution, and the balancing of growth with market integrity. This transition presents an opportunity to build on CCO's strong institutional foundation by augmenting it with specialised market and regulatory capabilities.

A more sustainable approach is structural separation. Administrative functions associated with mining can remain behind one side of a Chinese wall, market regulation, on the other side should be redesigned to follow the model of modern financial or energy regulators, with defined legislative, executive and quasi-judicial roles.

True spot markets originate from ecosystems rather than notifications. Worldwide, coal benchmarks were established around logistics hubs where standardised qualities, storage, sampling and delivery methods converged. In India, grades remain fragmented, storage capacity is limited, and delivery points are typically mine- or plant-specific.

Transaction risks are mainly influenced by logistics. Without alignment between exchange contracts and actual physical delivery, participants will stick to bilateral arrangements. A practical approach should concentrate on a few flagship contracts with specified quality standards, delivery points and transparent mechanisms. Standard contracts should include default provisions to address logistics disruptions, thereby minimising settlement shocks.

International coal benchmarks did not originate from regulation - they developed organically as trade centred around shared specifications and locations, with independent price reporting confirming transactions. Exchanges later improved efficiency and introduced risk-management tools.

India's early move to formalise an exchange underscores the importance of proper sequencing. Price reporting and exchanges should work together, not compete. Transparent PRAs fosters trust and nurtures the ecosystem, while exchanges offer scale and settlement certainty. Without coordination, benchmarks may stay procedural rather than serving as reliable reference points.

Despite risks, the reform is well-timed, as coal transitions from scarcity to abundance and administered pricing will hamper efficiency. Market-driven prices do the following:

Enhance transparency, guide investments, and align coal costs with electricity tariffs and industrial competitiveness.

Strengthen bidding discipline among power producers, improve input-cost visibility across the industry, and provide clearer price signals.

Link coal pricing to broader energy policies, making transition costs more transparent.

A functional spot market won't develop solely through legislation; it requires focused efforts in trading volume consolidation, standardised/logistics-friendly contracts, and regulatory frameworks tailored to markets rather than allocations. India can surely establish a credible coal benchmark that boosts its energy ambitions when institutional preparedness matches policy goals.