Importance of Mining Sector in the growth of India’s GDP

Mining Sector and Gross Value Added in the GDP

Mining Industry in India is a major economic activity that contributes significantly to the economy of India both directly and to a much larger extent indirectly by providing raw material to the manufacturing industry. Direct contribution of the mining industry to the GDP was around 3.4% in 1992-93, which declined to 3% in 1999-2000 and further to 2.3% in 2009-10. It stood at 2.7% in 2018-19. As per the estimates of FICCI every 1% increase in the growth rate of mining sector results in 1.2% to 1.4% increment in the growth rate of industrial production and correspondingly an increase of 0.3% in the growth rate of India’s GDP.

In the GDP contributor’s categorization Mining & Quarrying (2.7%) is included in the Industry Sector (29.73%) along with Manufacturing (16.83%); Electricity, gas, water supply & other utility services (2.67%) and Construction (7.54%). Mining sector produces are the basic inputs for the growth of the other contributors to GDP in this Sector. The Gross Value Added (GVA) to the economy in FY 2018-19, as shown by Ministry of Statistics & Programme Implementation is reproduced in the following table:

	Sector	GVA in 2018-19 (Rupees in Crore)
		Constant prices	share (%)	Current prices	share (%)
1	Agriculture Sector	1,842,873	14.39 %	2,692,433	15.87 %
2	Industry Sector	4,029,782	31.46 %	5,042,587	29.73 %
2.1	Mining & quarrying	385,135	3.01 %	457,301	2.70 %
2.2	Manufacturing	2,346,216	18.32 %	2,853,986	16.83 %
2.3	Electricity, gas, water supply & other utility services	287,109	2.24 %	452,683	2.67 %
2.4	Construction	1,011,322	7.90 %	1,278,617	7.54 %
3	Services Sector	6,936,122	54.15 %	9,226,346	54.40 %
	GVA at basic prices	12,808,778	100.00 %	16,961,365	100.00 %

According to a report by FICCI, if India is looking to increase the share of mining sector to 5% of the GDP in the next 20 years, this sector would be required to grow at the rate of 10-12% annually. In a presentation made to a high-level committee of NITI Aayog on mines, minerals and coal sectors recently it has been emphasised that in order to transform India’s growth to a double-digit growth rate of 10 per cent and above, manufacturing needs to grow and contribute about 25 per cent of the GDP and hence Mine in India to Make in India is the answer to achieve this feat.

 India’s Mines and Minerals produced

According to an estimate by late S.N. Padhi, a former Director General of Mines Safety, mining is conducted in India by about 600 coal mines, 35 oil projects and 6,000 metalliferous mines of different sizes employing over one million persons on a daily average basis. Both opencast and underground mining operations are carried out in mines and drilling and pumping is undertaken for extracting liquid or gaseous fuels. The country produces and works with roughly 100 minerals, which are an important source for earning foreign exchange as well as satisfying domestic needs. Country also exports iron ore, titanium, manganese, bauxite, granite, and imports cobalt, mercury, graphite etc.

As per the estimates of Geological Survey of India the country has significant sources of coal (fourth-largest reserves in the world), bauxite, titanium ore, chromite, natural gas, diamonds, petroleum, and limestone. India today ranks 2nd among chromite producers of the world, 3rd in production of coal & lignite, 2nd in barites, 4th in iron ore, 5th in bauxite and crude steel, 7th in manganese ore and 8th in aluminium. India accounts for 12% of the world's known and economically available thorium. It is the world's largest producer and exporter of mica, accounting for almost 60 percent of the net mica production in the world, which it exports to the United Kingdom, Japan, United States of America etc. As one of the largest producers and exporters of iron ore in the world, its majority exports go to Japan, Korea, Europe and the Middle East. It also has one of the largest deposits of manganese in the world, and is a leading producer as well as exporter of manganese ore.

According to a publication in the Asian Age News Paper, India’s expenditure on mineral exploration is far behind that in the other countries.  It accounts for only 0.3% of the GVA in the sector compared to over 19% by Canada, 12% by Australia, 7% by United States, and 4.5% by China. The Geological Survey of India needs to expand its focus on baseline data generation to encourage exploration activities for the development of mining sector.

Energy elasticity and the need to accelerate growth of energy provider

Energy elasticity is a term used with reference to the energy intensity of the Gross Domestic Product (GDP).  It is the percentage change in energy consumption to achieve % change in the national GDP. India’s Integrated Energy Policy of 2005 noted the then elasticity at 0.8. With a planning of 7-8% GDP growth, it was expected to reduce this to 0.75 by 2011 and to 0.67 by 2021-22. The present Government, however, aims at a double digit growth in the GDP. Thus, if the targeted GDP growth is 10-12%, growth in the energy sector will be desirable at 7-8.5%. This would mean that growth in the energy sector has to be enormous in terms of volume. This requires having a closer look at the way we supply energy in India and the task ahead in that sector.

In the year 2016, coal accounted for 44% of the total primary energy supply in India, while the shares of bio-fuel, primary & secondary oil, and others (including natural gas, nuclear, hydro and solar/geothermal) were 22.22%, 25.14% and 8.64% respectively. In the years to come coal is considered to be the predominant resource providing energy to the country, because of its availability in abundance, cost considerations and limitations in the availability of other resources. Thus, it would be wise to consider that the required growth in coal supply would be much more than the average 7-8.5% in the energy sector, as estimated above.

Let us now consider the total coal supply to the country during 2018-19. The press release of Ministry of Coal states that in the year 2018-19, total coal supplied to meet the energy requirement of the country was 730.354 million tonnes from the domestic sources and 213.70 million tonnes from imports totaling at 944.054 million tonnes. Compared to this the total supply of coal to the country in 2017-18 was 884.75 million tonnes including 676.48 million tonnes from indigenous sources and 208.27 million tonnes from imports. The growth in total supply of coal was 6.7%. However, if, wish to increase the Gross Value Addition by coal and reduce the foreign exchange outgo on coal imports, that is, meeting entire demand of non-coking coal from domestic sources (896.484 million tonnes in 2018-19), the required growth in indigenous coal supply during 2018-19 would have been 32.52%. It is not possible to achieve this steep growth in one or two years, but would require considerable efforts by all stake holders, particularly by the Government in bringing changes in the policy of domestic coal production to meet the entire requirement of non-coking coal. This would necessitate steep growth in the indigenous coal production and supply.

Analysis of the Government Policy on increasing domestic coal production

With the nationalisation of coal mines in the years 1971-73 and formation of Coal India Ltd. the onus of meeting country’s total coal requirement was placed on the Government companies, viz Coal India Ltd. (CIL) and Singareni Collieries Company Limited (SCCL), excepting TISCO, IISCO and DVC for meeting their captive requirement. Later, it was felt necessary to include power generation, cement manufacturing and washing of coal in the list of captive mining and Coal Mines Nationalisation Act was amended to include these activities in the year 1993. From this year onward, the resource base of CIL and SCCL were limited and coal blocks were identified for allocation for mining for captive use for iron & steel, power and cement industries. It was expected that as the growth in the industry sector was largely to come from these three basic industries, captive mining would provide them opportunity with meeting their own requirement and the economy would be pushed forward for creation of infrastructure in the country. In the past 26 years the policy of allocation of coal blocks has undergone several changes and the contribution of coal supply from captive mining has been dismal. It is a history that the allocated coal blocks till 2014 were found not legal by the Supreme Court, which cancelled all such allocations, barring two, through its order dated 24^th September 2014.

Contribution of coal supply through captive mining

In spite of 26 years of the history of introduction of captive mining policy by the Government, the contribution of coal production from this sector has been dismal. While CIL grew from the level of 305.36 million tonnes in 2003-04 to 606.89 million tonnes in 2018-19, SCCL grew from 33.65 million tonnes to 64.404 million tonnes and the captive mining grew from 9.49 million tonnes to about 50 million tonnes in the same period. Statistics of coal production for the years 2003-04, 2013-14, 2017-18 and 2018-19 reveal these figures, as shown in the following table:

Sl. No.	Producer	Production (MT)				Increase / decrease (2018-19 over 2003-04)
		2003-04	2013-14	2017-18	2018-19
1	CIL	305.364	462.413	567.366	606.887	301.523
2	SCCL	33.654	50.469	62,010	64.404	30.75
3	TISCO	6.146	6.972	6.224	8.663 (considering same as in 2017-18)	(-)4.073
4	IISCO	0.770	0.622	0.793
5	DVC	0.381	0.054	0.047
6	Meghalaya	5.439	5.732	1.529
7	Captive Mining	9.492	39.504	37.031	50.400	40.908
8	Total	361.246	565.766	675.400	730.354	369.108

The above table indicates that in spite of limitations in the coal resource  ownership by CIL and SCCL, these companies have shown ample growth in coal production while captive mining group, even after allocation of more than 200 coal blocks failed to meet their own requirement. In my opinion, if CIL and SCCL were allowed to retain ownership over the blocks that they were forced to release for allocation in captive route, the today’s coal production scenario of the country would have been different and the country would not have been subjected to import plus 160 million tonnes of thermal coal.

Suggested policy intervention by the Government for enhancing indigenous coal production

In the light of the foregoing discussions the following policy interventions are suggested to be included by the new Government at the central level and the state Governments:

1. Higher GDP growth is in the interest of both the Central and the State Governments as it enables providing more employment opportunities and creation of infrastructure and public wealth for the country and the region. As such, Governments at both the levels should act as facilitator to the mining sector and not only as regulators.
2. Coal blocks for auction should be formed with larger resource base, preferably 200 MT and above to enable the successful bidder to plan for high capacity mines of not less than 10 MTPA by opencast and 2-3 MTPA by underground.
3. Government sector coal producers, viz, CIL and SCCL should be allocated more coal blocks in the vicinity of their operations and should be facilitated in getting the various clearances for starting coal production at the earliest.
4. Criteria for auctioning coal blocks both for the captive mines and commercial mines should be made the same. Currently different yardsticks are adopted for auction and hence participation by the industry is lukewarm. 
5. In fact there should be only two types of coal producers – a Government company and other company, as is mentioned in the Coal Mines (Special Provisions) Act, 2015. There should not be any differentiation between a captive end user and a commercial miner so far as auction for allocation is concerned. A captive end user should not be provided any linkage from any Government company and should meet their requirement from the captive mines and or market. They should also be allowed to mine and sell the coal in the market.
6. Ministry of Coal should put a coal block in the allocation list only after written consent from the Ministry of Forest & Environment that the block shall be granted forestry clearance following the due process in a defined time-frame.
7. Land acquisition & Resettlement and Rehabilitation (LARR) Act, 2013 should be amended to exclude the provision of obtaining consent from the villagers. Once the block has been selected for mining, all hindrances for further clearances from the public should be removed from the law for its timely projectisation and production.
8. The criterion of environmental clearance based on coal production capacity of a project should be changed to total excavation capacity, including that of the over burden as well in the case of an opencast mines, as only coal production does not create environmental degradation but the OB too has a role in it. This will provide an opportunity for the producers to increase the coal production in any year if the required OB removal is less, without any violation of environmental norms.
9. Infrastructures like rail, road and power supply should be built in the coalfield areas by the Government to facilitate movement of mined coal.
10. Long distance transport of coal by road should be restricted to reduce environmental degradation. It should be limited to transportation from mine head to the rail siding and washeries, preferably within 50 km. distance.
11.  Policies should be made for short distance transport (say up to 10 km.) of coal through belt conveyors and mechanised silo loading into rail wagons. Road transport of coal should be made in covered trucks to avoid spillage of coal on roads.
12. Even after simplification of the processes for environmental and forestry clearances the time taken for clearance has not reduced considerably. The concept of single window clearances for all approvals, starting from approval of mining plan to mine opening permission should be introduced. Accountability should be fixed for delays in clearances as a deterrent for delays. Introduction of time bound e-clearance would be quite helpful in this respect.
13. With the introduction of commercial mining, pricing of coal would become a much bigger issue and there would be a lack of level playing field between the existing producers of coal and the new entrants. Both CIL and SCCL have inherited the past legacies and are losing heavily on underground mines. The new entrants will have their operation in the Greenfield areas and will have the liberty of choosing manpower and technology to make the mine cost effective. A regulatory authority would be required to be set up for fixation of price of coal mined by the different companies.