The mining sector carries a weight of approximately 14.4 per cent on the Index of Industrial Production (IIP) and it grew at a compound annual growth rate of 2.1 per cent during the period 2013-2020. During this time, India witnessed the closure of mines in Goa, the de-allocation of coal blocks and various investigations into illegal mining.
Notably, mining is the first activity among multiple value chains and, as such, its multiplier effect is very large in terms of both output and employment. However, low production and supply chain disruptions in the wake of the Covid-19 pandemic have led to a strong impact on mining activity in the country.
Impact on mineral production
During the Covid-19 pandemic, falling demand as a result of the nationwide lockdown and supply chain issues forced miners to either run at significantly lower capacity utilisation levels or close down operations temporarily. The monthly index of mineral production (excluding fuel minerals, atomic minerals and minor minerals) stood at 83.2 during April-May 2020, a decline of 23.7 per cent compared to the corresponding period in the previous year. The estimated value of mineral production during April-May 2020 stood at Rs 65.54 billion, which is 51.4 per cent lower compared to the corresponding period in the previous year.
An immediate consequence of this subdued production at mines is a fall in revenues from the mining sector for the government. Considering the scenario at the end-use side, reduced construction activity has led to a reduction in the consumption of steel and cement in 2021, thereby affecting the production of iron ore and limestone. Similarly, a slowdown in manufacturing activity in the industrial sector has impacted coal-fired power generation, thereby hitting the production of, and royalties and taxes from, thermal coal. Needless to say, the demand for several other minerals has also been hit.
Impact on auctioned mineral blocks
The recent coal mining auction held in November 2020 under the commercial coal mining policy saw aggressive bidding by domestic players, with 19 blocks being successfully auctioned, which are expected to generate total revenues of around Rs 70 billion per annum for the government. Besides, as of February 2020, 105 non-fuel mineral blocks have been successfully auctioned. The new allottees of greenfield mineral blocks are currently in the process of obtaining statutory clearances, such as mining plan approval, environment clearance and forest clearance.
However, the time taken for obtaining statutory clearances and operationalising the mine is likely to get extended, given the delays in the completion of field activities due to Covid-related restrictions as well as delays in processing applications at the government level. The impact will be felt comparatively more for brownfield mines than for greenfield mines, as the latter usually take substantially more time to operationalise. Even if a time extension is provided for all statutory clearances, the allottees may not be willing to develop the mines for some time due to the weak market scenario, coupled with their stretched financial situation. The allottees may also face difficulty in raising the required funding for mine development.
Impact on MDOs and MOs
The Indian mining sector is heavily dependent on private contractors, who work as either mine operators (MOs) or as mine-developer-cum-operators (MDOs), for production. This dependence on contractors currently amounts to around 60-70 per cent of the total volume of ore and overburden excavated from the earth. The pandemic is expected to significantly impact the demand for coal and key minerals, which will have a bearing on the receipt of payments by MDOs/MOs from the allottees owing to miners’ cash flow issues.
Regulatory bottlenecks, combined with the ravages of the pandemic, have strongly impacted the mining sector. However, the Covid-induced disruptions are expected to give way to a phase of rapid industrialisation. The mining sector, like a few other sectors, is the key to recovery in the post-pandemic world. The mining industry has welcomed the government’s move to open the sector under its stimulus reforms. The government has also recently announced a new single-window clearance portal for the coal sector with the aim of speeding up the operationalisation of coal mines. Such policy interventions are expected to provide the much-needed boost to the long-ailing mining sector. The government should also consider granting infrastructure status to this sector so as to help mining projects obtain financial support from financial institutions.