KOLKATA (miningweekly.com) - India’s gross domestic product (GDP) growth during 2011/12 would be dragged down to 6.9% compared with the 8.4% achieved in the previous corresponding period, as mining and quarrying sector growth contracted by some 2.2%.

Advance GDP growth estimates released by the Finance Ministry noted that while all sectors were likely to close the year marking a sharp slowdown in growth for the previous year, mining and quarrying was the only industry that was expected to show negative growth.

Agriculture, forestry and fisheries would record growth of 2.5% against 7% in the previous year, manufacturing 3.9% growth against 7.6%, electricity, gas and water supply 8.3% growth against 3%, and construction 4.8% growth against 8%.

Transport and communication would remain stagnant at 11%, while finance, insurance and business services would record 9.2% growth against 10.4%.

In sharp contrast, mining and quarrying, which grew 5% in 2010/11, would record negative growth of 2.2%, thereby, being the largest contributing factor in lowering the overall GDP growth forecast.

However, there was room for reassessment of this forecast once the final figures for 2011/12 came in and the final GDP growth could inch up to 7.2% according to India’s Chief Statistician, T CA Anant.

A disaggregation of the sectoral growth forecast reveals that the iron-ore and coal-mining sectors were the biggest contributors to the negative growth of the Indian mining sector, which accounts for 3% of the country’s total GDP.

Between April and December 2011, total iron-ore production was down 4.81% at 208-million tons. Worse, exports plunged to 40-million tons during the period compared to 90-million tons during the corresponding period of the previous year.

The crisis in the Indian iron-ore mining industry was the direct result of widespread illegal mining in the mineral-rich provinces of Orissa, Andhra Pradesh and Goa, which prompted the Supreme Court to impose a complete ban on mining in Andhra Pradesh and Goa, each of which accounted for about 18% of the country’s total iron-ore production.

The negative growth in the mining sector has also had a ripple effect on downstream and service industries. Iron-ore accounted for 15% of Indian Railways total freight and the latter, in turn, constituted 70% of Indian Railway’s total revenue. Between April and November 2011, revenues of $1.05-billion from Indian Railway's iron-ore freight fell 7.1%. In contrast, during the corresponding period of the previous year, iron-ore freight revenues of $1.15-billion increased 2.6%.

Meanwhile, environmental concerns held up the coal sector with coal reserves spread across 300 000 ha failing to secure mandatory approvals for development. Coal India Limited (CIL), which accounted for over 82% of India’s total coal production of 530-million tons suffered setbacks with production falling 1.6% to 335.9-million tons between April and January compared to 341.4-million tons during corresponding period of the previous year.

“As on date, we have 178 proposals pending for forestry approvals. With 90% of CIL production coming from opencast mines, production was also affected by problems relating to land acquisitions,” a senior CIL official said.

For 2011/12 the company has scaled down its production target to 440-million tons from 452-million tons set earlier in the year.

To provide a stimulus to the sagging growth in the mining sector, the coal and mines Ministries have forwarded several fiscal suggestions to the Finance Ministry for incorporation into the Union Budget in March 2012.

These include fiscal incentives for value addition, such as investments in beneficiation and washeries, at iron-ore and coal mine pitheads, scrapping of the 2.5% duty on imported coal and even the creation of a sovereign fund to support government-owned mining and steel companies to acquire mineral assets overseas.
 

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