India is well endowed with mineral reserves and the mining industry plays a crucial role in economic growth. The share of mining and quarrying in gross value added in the economy stood at 3.05 per cent in 2014-15. The index of industrial production shows that mining grew by 2.1 per cent in April-November 2015 as against 2.5 per cent in the corresponding period of the previous year.
Overall, 2014-15 was a challenging year for the mining industry in the country, and the volatility in commodity prices continued in 2015-16 as well. Coal block deallocation in September 2014 affected both the price of coal and demand adversely in India. On the policy front, the promulgation of the Mines and Minerals (Development and Regulation) (Amendment) Bill, 2015 was a silver lining. The amendments in this bill introduced the concept of e-auctions for mineral concessions, thereby heeding long-pending demands of the industry for ensuring transparency.
Value of mineral production
In 2014-15, the value of India’s total mineral production stood at Rs 2,676 billion, a decline of about 3.8 per cent, compared to Rs 2,781 billion in 2013-14. In fiscal 2015-16, the total value of mineral production for the period April-November 2015 was estimated at about Rs 1,473 billion. This decline can be attributed to restrictions on exports, a ban on mining in some states and a decline in some commodity prices. In terms of the value of minerals produced, the public sector has the largest share. In 2014-15, the contribution of the public sector stood at 73 per cent while that of the private sector was 27 per cent.
Fuel minerals (coal, lignite, crude petroleum and natural gas) account for the maximum share of about 64 per cent of the total value of minerals produced. Metallic minerals are next with a share of 14 per cent, followed by non-metallic minerals with a 3 per cent share. The remaining is accounted for by minor minerals. A mineral-wise analysis shows that coal accounted for the maximum value at Rs 710 billion, followed by petroleum at Rs 680 billion, iron ore at Rs 279 billion, natural gas at Rs 270 billion and limestone at Rs 50 billion.
Operational performance
India Infrastructure Research analysed the production performance of 12 major mining companies in the coal, bauxite, iron ore, lead and zinc, and lignite segments for 2014-15 as compared to the previous year.
The analysis indicated mixed results with Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL), the Gujarat Mineral Development Corporation (GMDC) and the National Mineral Development Corporation (NMDC) recording an increase in production in the range of 1-24 per cent. Meanwhile, National Aluminium Company Limited (NALCO), Hindustan Copper Limited (HCL), Hindustan Zinc Limited (HZL), Vedanta Limited, Steel Authority of India Limited (SAIL) and Tata Steel Limited (TSL) recorded a decline in production ranging from 0.1 to 60 per cent. Notably, GMDC witnessed an increase of over 23 per cent in bauxite production in 2014-15 with the commencement of mining operations at its Mewasa bauxite mine in Gujarat. GMDC’s lignite production also increased with the operationalisation of the Umarsar lignite mine. On the other hand, Vedanta Limited recorded a 60 per cent decline in iron ore production in 2014-15 as production in Karnataka was suspended until December 2013 and in Goa for the full fiscal 2013-14. TSL’s production also suffered as the company’s mines in Jharkhand faced closure for about 30 days, affecting output by 5.2 million tonnes, while Hindalco was affected by mining restrictions in Jharkhand.
Financial performance
The financial results of 11 mining majors (CIL, GMDC, HCL, Hindalco, HZL, NALCO, the Neyveli Lignite Corporation [NLC], NMDC, SAIL, TSL and Vedanta Limited) for 2014-15 show an increase in income but a decline in profitability for most companies. The increase in income was in the range of 3-19 per cent. Hindalco recorded the highest increase at 18.8 per cent as production from the company’s expansion projects stabilised. However, its net profits declined by over 60 per cent. This was mainly due to a rise in input costs (coal, diesel, freight, etc.). HCL too recorded a dismal performance with an over 30 per cent decline in income and over 76 per cent decline in profits. The company largely attributed this to the steep fall in London Metal Exchange prices of copper, a decline in ore production, and government restrictions on mining in Jharkhand.
Vedanta and TSL recorded net losses in 2014-15 after earning profits in the previous year. TSL’s performance was impacted due to the closure of some of its critical mines leading to a higher cost pressure on the supply chain. Meanwhile, Vedanta’s profits were affected by the steep drop in oil prices, which impacted oil and gas operations.
Productivity trends
Low productivity is a key challenge for the mining industry. Though labour is easily available, it is unskilled and inexperienced. Mechanisation levels are also very low compared to global standards. These factors lead to poor productivity and a high accident rate. For instance, CIL’s output per man-shift (eight hours) was 12.18 tonnes for opencast (OC) mines and 0.76 tonnes for underground (UG) mines in 2013-14. In contrast, miners in the US can produce more than this quantity in just an hour; the average production per employee-hour stood at 9.69 tonnes for OC mines and 3.07 tonnes for UG mines in 2013 (US Energy Information Administration).
Mechanisation of mines would ensure higher production but there are challenges in implementing this due to political reasons. Concerns are often raised about loss of livelihoods as greater mechanisation would lead to a lower manpower requirement.
Future outlook
The global mining industry is going through a challenging phase. Global commodity prices have declined by over 50 per cent for most minerals in the past three years. In India, policy reforms are being undertaken in an attempt to revive the sector. The current situation is expected to continue at least in the near term and companies may continue to face lower realisations.
According to Fitch Ratings, India’s gross domestic product (GDP) was expected to grow at 7.5 per cent in 2015-16 and at 8 per cent in the following two years. As per advance estimates of the Ministry of Statistics and Programme Implementation, GDP growth in 2015-16 is expected to be 7.6 per cent. Several macro factors such as deregulation of diesel prices, fuel reforms, measures to boost foreign direct investment, and faster environmental clearances are expected to further revive investments in infrastructure projects and increase the demand for mineral commodities.
The government’s Make in India initiative is expected to drive the growth of several critical industries including mining. In fact, the success of the initiative would depend on the growth of the mining industry, or else the manufacturing segment may need to rely on imports. Other factors that will drive the growth of the mining industry’s end-products (metals such as steel, aluminium and copper, and non-metals such as gypsum, cement, etc.) include increasing urbanisation, demand for affordable housing, as well as the government’s focus on the power sector.
