NEW DELHI (Reuters) - State-run Coal India Ltd, saddled with millions of tonnes of unsold coal, is expected to be the biggest beneficiary of a controversial government decision to more than halve the local sales tax on the fuel after a jump in local supplies.

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The world's third-largest greenhouse gas emitting country said last Friday it would lower the duty on domestic coal from July 1 and impose a new 18 percent tax on solar cells and modules as part of a broader tax overhaul. (bit.ly/2qRNuqY)

The moves are seen as helping boost sales of the fossil fuel mined locally and used mainly in thermal power plants. But imports of high-quality coal which are scarce in India and used in the steel making process by companies such as JSW Steel and Tata Steel will become expensive following changes to the duty structure.

The duty revamp under the national India’s Goods and Services Tax (GST) could also hurt the young and booming solar power industry, which relies heavily on cells and modules imported from China.

Output by Coal India, the world’s largest coal miner that mainly produces low-grade coal for power companies, has expanded rapidly as the government speeds up environmental and other approvals as part of its efforts to provide electricity across the country. However, highly indebted power companies struggled to match the same growth rates.

The government recently reined in coal output, cutting Coal India’s production target by about a tenth to 600 million tonnes for this fiscal year.

Coal India hopes the lowering of the coal sales tax to 5 percent from around 11 percent currently will help it find buyers for some 57 million tonnes of mined coal it has been struggling to sell, a senior company official told Reuters.

“As prices go down it should help us sell the stock,” the official said, declining to be named.

The company has also been trying to sell coal to neighbouring Bangladesh, but has faced delays due to issues over quality.

New Delhi-based Jindal Steel and Power said the lowering of the duty on coal, which accounts for up to 60 percent of costs for power companies, will improve the health of merchant power companies and cut power tariffs for some users.

“The government is mining so much coal, they would like that be used,” Jindal Steel Chief Executive Ravi Uppal told Reuters, adding that it was only fair that thermal power companies were being given some relief when renewable companies were enjoying numerous government incentives.

The government has facilitated capital subsidies and cheap loans for clean energy to help meet Prime Minister Narendra Modi’s goal of raising renewable energy capacity by more than five times in the next five years to fight climate change.

Piyush Goyal, minister for power, coal and renewable energy, said after the tax announcement the government will stick to its clean energy goals, but environmental groups said India’s progress on solar would be jeopardised.

“The international community will read this as India backtracking on its renewable energy commitments,” said Nandikesh Sivalingam, climate and energy campaigner at Greenpeace India.