Overview

Policies eased to revive growth

The performance of the mining sector is a key determinant of economic growth. India is well endowed with minerals, and these serve as raw materials for a number of sectors such as power, iron and steel, fertiliser, and cement. At present, 88 minerals, comprising four fuel minerals, three atomic minerals, 26 metallic and non-metallic minerals, and 55 minor minerals, are produced in India. Odisha, Chhattisgarh, Rajasthan, Karnataka and Jharkhand are key mineral-rich states.

Given the imposition of mining bans in several states as well as the lack of a transparent policy framework, the sector has seen difficult times, resulting in low growth. However, the Mines and Minerals (Development and Regulation) (Amendment) Bill, 2015 (MMDR Bill) is expected to give a fresh impetus to the sector by ensuring greater transparency through auctions and expeditious renewal of applications.

  •  Reserves: Of all the minerals in India, coal is the most abundant, with total reserves of 305.87 billion tonnes (bt), followed by lignite at 44.11 bt, as of April 2015. The coal resource base is skewed towards non-coking coal with a share of about 89 per cent. Among metallic minerals, India has large iron ore and bauxite (metallurgical grade) resources, followed by copper. In the non-metallic minerals segment, deposits of limestone and manganese ore are the most abundant.
  • Production scenario: The number of mines (excluding minor minerals, petroleum [crude], natural gas and atomic minerals) reporting production declined to 3,318 in 2014-15 from 3,722 in the previous year. This was mainly due to the closure of some mines (like iron ore mines in Goa and Karnataka) due to regulatory restrictions. In 2014-15, the maximum number of productive mines was located in Rajasthan, followed by Andhra Pradesh and Gujarat.

The aggregate mineral production (in value terms) during 2014-15 stood at Rs 2,676 billion, a decline of 3.8 per cent over that reported in 2013-14. While the value of non-metallic minerals recorded a healthy compound annual growth rate (CAGR) of over 8 per cent during the period 2010-11 to 2014-15, that of fuels increased by less than 1 per cent, and metallic minerals recorded a decline of over 6 per cent. However, the index of mineral production for 2015-16 (April-October) increased to 114.1, up from 105 during the same period in the previous year.

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As regards key minerals, iron ore production continued to fall in 2014-15, dropping to 129 million tonnes (mt) compared to 152 mt in 2013-14. After years of slow growth, coal production showed an 8 per cent growth at 612 mt in 2014-15 over 2013-14. Production of limestone grew by 4.4 per cent during the same period and stood at 291 mt.

  •  Consumption scenario: India is self-sufficient in most minerals except coal and lead (primary). According to the latest statistics available, in 2013-14, coal, limestone and iron ore registered the highest demand (in absolute terms), at 769.7 mt, 270.52 mt and 107.88 mt respectively. In terms of year-on-year growth in 2013-14, the demand for coal and lead (primary) showed a decline while the demand for bauxite, copper, zinc and limestone registered growth in the range of 4-45 per cent.
  • Import and export trends: Among key minerals, the export of iron ore is the most significant in terms of volume, though it has seen a steady decline in the past four years. Iron ore exports declined by over 50 per cent in 2014-15 as compared to the previous year. This can be attributed to depressed domestic production, a decline in global prices and the levy of export duty on low-grade iron. Meanwhile, bauxite exports have been increasing and almost doubled to 6.8 mt in 2014-15 vis-à-vis 2013-14. Limestone exports also increased in recent years, presumably due to a slump in domestic demand from the cement sector.

In terms of imports, coal dominates all minerals with imports reaching 212 mt in 2014-15. The high level of imports is mainly due to the inability of domestic companies to ramp up production. However, the situation has improved in 2015-16 with Coal India Limited registering a nearly 10 per cent growth in production, during the period April 2015 to January 2016 vis-à-vis the corresponding period in the previous year.

Meanwhile, iron ore imports increased significantly from just 0.98 mt in 2013-14 to 12.09 mt in 2014-15, in the wake of restrictions and bans on mining in various states resulting in a domestic shortage. Limestone imports too have increased owing to the availability of cheaper options globally.

  • Policy push: The MMDR (Amendment) Act, 2015 is seen as a game changer for the sector. The act has replaced the first come, first served or discretionary mechanism for awarding rights to mine mineral resources, by a transparent and competitive auction process. The government has also detailed the rules for auctions as well as the draft rules for mineral concessions. For coal, allocations are being made via a competitive auction process.

The Ministry of Coal commenced coal block auctions in December 2014. As of January 2016, three rounds of auctions, awarding a total of 31 coal blocks, had been conducted.

The states have also commenced the auction of mines. A total of 63 mines (across eight states) are on offer in the first phase. Of these, the maximum number (15 mines) are being offered by Karnataka, followed by Rajasthan (11 mines) and Odisha (10 mines).  These mines include iron ore, bauxite and limestone mines.

  •  Capital expenditure trends: In 2014-15, the total capital expenditure undertaken by 11 major mining companies stood at Rs 352.91 billion, a decline of around 11 per cent over the previous year (Rs 391.73 billion). The operating expenditure of these mining companies increased by 13 per cent in 2014-15 as compared to 2013-14. The highest contributor to this was an increase in raw material costs, followed by power and fuel costs. Profit margins of mining companies remained under pressure in 2014-15, with seven out of the 11 companies under consideration witnessing declining margins.
  • Growth in the equipment market: The mining equipment market, which had been declining since 2012, saw a growth of around 9 per cent in 2014 in terms of number of units sold. Backhoe loaders, which constitute the largest share of equipment, saw a growth of around 8 per cent in 2014. Sales of crawler excavators grew at 11 per cent. The sale of mining equipment is projected to reach 73,380 units by 2018, growing at a CAGR of 12.75 per cent between 2014 and 2018. Backhoe loaders are expected to have a majority share of 52 per cent by 2018, followed by crawler excavators at 38 per cent.

Outlook

Given the easing of policies, the mining industry is expected to pick up momentum in the near term. Besides, there is a robust pipeline of 208 projects with a total capacity of about 1,993.58 mt and entailing an investment of around Rs 2,104.8 billion. For key minerals, such as coal, the government has set the production target of 1 billion tonnes by 2020. The expected increase in coal-based power generation capacity is likely to drive this production.

Iron ore production is expected to reach 242 mt by 2019-20 driven by the easing of regulatory constraints. The increase in cement requirement for infrastructure development is expected to drive limestone demand, which is expected to increase to 432 mt by 2020.

However, some pressing issues continue to impact the sector’s performance. Regulatory issues such as difficulty in transfer of mining leases, delays in securing statutory clearances and approvals warrant corrective policy measures at the earliest. With growing environmental concerns, there is an urgent need for the adoption of sustainable mining methodologies.

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