The insatiable appetite for minerals

Notwithstanding our long-term needs for minerals, mining leases have been granted at an unsustainable pace


Photo: Getty Images
Photo: Getty Images

In 2013, India consumed 51kg of steel per capita while China consumed 550kg per capita. The corresponding figures for energy consumption per capita are 614kg and 2,029kg of oil equivalent, respectively. It is evident that over the next couple of decades, mining has a significant role to play as the India growth story gathers momentum.

Mining has also been the cause of tremendous conflict, both violent and non-violent. My recent travels through Chhattisgarh gave me first-hand evidence of the violence initiated by the state, by corporates (sometimes against each other), by civil society and by outlawed groups like the Maoists. A large percentage of India’s mining districts are affected by insurgencies of one kind or another. These areas are also characterized by high levels of poverty resulting from a number of factors, including the displacement of the local people, lack of employment opportunities, remote location of downstream industries and violation of mining guidelines by mining firms.

Excluding crude oil, and atomic and minor minerals, there were only 3,700 reporting mines in 2013-14 out of over 50,000 believed to be in operation. The average daily employment of labour in mining decreased from 549,000 people in 2004-05 to 512,000 people in 2013-14, despite a fourfold increase in the value of production over the same period.

The sustainable growth of mining depends on the availability of demand, either from domestic sources or from abroad. The demand for mining is cyclical in nature, and the cycle is increasingly influenced by the global commodities cycle. For instance, export of iron ore dropped from 101.5 million tonnes to 46.9 million tonnes from 2009-10 to 2010-11 after the global financial crisis.

Much confusion on economic policy (including wasting valuable political capital on the land ordinance) has been caused by misdiagnosing the ills stemming from the United Progressive Alliance regime, ills whose provenance partly lies in the nature of liberalization itself. During 1998-2005, 216 mining projects were granted forest clearances annually, as against 19 per year during 1980-97. From 2007 to 2012, the ministry of environment and forests granted environmental clearances to double the national coal, thermal power and cement capacities and increase the steel production capacity by 35%. We have currently cleared thermal power capacity of 65,000 megawatts additional to what had been proposed till 2017 by the 11th and 12th Five-Year Plans. Much of the enhanced capacity in coal mining, steel, thermal power and cement is lying unutilized.

In other words, notwithstanding our long-term needs for minerals, since 2000, the government of India has granted mining leases at an unsustainable pace, threatening the health of our banking sector as well as our social cohesion. Stressed assets related to mining constitute a significant percentage of the stressed assets of the banking sector. And yet, while Reserve Bank governor Raghuram Rajan rails against the model of “riskless capitalism” in justly celebrated seminars, people protesting against unfair land acquisition practices are dubbed anti-national.

Sometimes, the award of mining leases is often unrelated to any foreseeable growth in demand. For instance, as per 2010 figures from Indian Bureau of Mines, of the 3,480 million tonnes of bauxite resources in India, nearly a sixth—593 million tonnes—fall under lease-hold areas. At current levels of consumption (12 million tonnes per year) these mines will last for 50 years. So why do we need to give out more mining leases for bauxite?

Other than making better use of existing leases, windows of opportunity for meeting our appetite for minerals relate to reducing the inefficiencies in our supply chain as well as limiting the considerable quantities of theft that characterize our mineral operations.

The use of ill-gotten gains to make investments in real estate highlights the sorry irony that the displacement of hundreds of thousands of the poor is taking place merely so that assorted public sector executives and sundry politicians and bureaucrats can acquire their nest eggs. Finally, if not considered impolite, one could also ask our citizens whose energy consumption matches first-world standards to turn down their air conditioners a bit!

While mining has generally been an exploitative affair around the world, best practices are not entirely absent. In Alaska, locals benefit from the extraction of oil through the creation of an Alaska Permanent Fund, which receives 25% of all income earned by the state from mining. From 1982 to 2009, the total dividend payout to Alaskans was $17.5 billion. In less-developed economies, diamond mining in Botswana and copper mining in Chile show that natural resource dependence can lead to relatively broad-based growth.

The need of the hour is a three pronged strategy consisting of: a) Reducing the coupling of our mining sector with the global commodities cycle (removing reconnaissance activities from the pale of market forces would be a good place to start), b) Strengthening regulatory capacity to ensure that unregulated mining ceases and mining companies follow rules, and c) Provision of basic services in advance of the start of mining operations so that local populations can take advantage of mining projects, and the associated positive spin-offs.

Unfortunately, in India today, responsible mining is a voice in the wilderness. We should aim to go slow in granting fresh clearances, till steely foundations can be put in place for our regulatory institutions.

Rohit Prasad is a professor at MDI Gurgaon.

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