India is launching a government-owned investment company to buy stakes in overseas coal producers and secure future supplies of vital raw materials for its booming steel and power industries.

The decision, approved by cabinet this month, comes amid mounting concern in India over the future of coal prices if the proposed merger of major producers BHP Billiton (NYSE: BHP - News) and Rio Tinto goes ahead.

"This is a first of its kind in India where government companies belonging to different ministries have joined hands in this way," India's Secretary for Steel, RS Pandey, said in an interview.

India already competes with China to secure overseas supplies of oil and gas.

But the establishment of the new company to buy coking coal for steel and thermal coal for power plants marks the first time this strategic competition for resources has moved into other industries.

The new investment company will be led by Coal India, the state coal miner, and Steel Authority of India, the biggest state steel producer. It will include electricity producer National Thermal Power Corp, Rashtriya Ispat Nigam Limited, another steelmaker, and state miner National Mineral Development Corp.

Mr Pandey said the new company would have initial funds for investment of Rs105bn ($2.64bn) and would meet this week as deliberations begin to choose a chief executive officer.

He said India's need to secure coking coal was acute - Steel Authority of India imported 70 per cent of its coking coal needs for last year, while RINL imported 90 per cent.

"Since they're going to almost double their steel capacity in the next three years or so, their dependence [on imports] will be substantial . . . so there is no escape from imports."

But analysts said the new company would find it hard to buy affordable coal assets due to soaring prices. Export prices for coking coal from South Africa have risen 100 per cent to $100 a tonne in the past six months.

"They are going to enter the market probably at absolutely the top of the resources boom," said Gerard McCloskey, chairman of The McCloskey Group, a research and news company specialising in the international coal market.

Asked about the proposed merger of BHP and Rio Tinto, Mr Pandey said consolidation was good if it meant "better products at least cost".