BackViews | The natural resources crunch
Views | The natural resources crunch
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Steel maker JSW Steel said on Monday that it was cutting production by around a third because of a shortage of iron ore to feed its mills, following an interim ban imposed by the Supreme Court on mining in the Bellary region.
This is the latest in a series of developments that indicate how the Indian economic engine could be hurt by shortages of natural resources. Earlier, production glitches at the KG-D6 gas field operated by Reliance Industries raised fears that many power, fertilizer and industrial units could run short of natural gas. The Bellary ban was a valid response to the spread of illegal mining in the Karnataka district, and could be temporary. However, pressures are building up on other fronts as well.
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News Report
• JSW Steel cuts output to 30% of capacity on iron ore scarcity
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The most serious problem is coal. Demand has been growing far faster than supply. Coal minister Sripraksh Jaiswal said earlier this month that domestic supplies could be 200 million tonnes less than demand in the 12th Five Year Plan period. Public sector miner Coal India is clearly unable to get its act together. Environmental concerns forced the government to this year declare that 203 coal deposits could not be mined because they were in forested areas. The Washington Post cited unnamed Indian officials who warned that dozens of power plants under construction at a collective cost of $22 billion could sit idle next year.
Indian companies have naturally sought coal from other countries. Adani Enterprises will invest over $10 billion in Australia for coal mines, a railway line and a port, for example. Others have moved into countries such as Indonesia and Mozambique. The idea is to ship the overseas coal to domestic power plants. However, this strategy is also facing some headwinds as foreign government crack down on current transfer pricing practices under which Indian firms export cheap coal to their domestic plants. The Indonesian government has insisted that the coal should be exported at global prices, so that profits remain in Indonesia. Such pricing could raise the costs of power in India.
The domestic policy gridlock and resource nationalism in some countries are two emerging worries for the resource-constrained Indian economy, especially since nuclear power projects in Maharashtra and Tamil Nadu have become political hot potatoes. It is high time the government paid more attention to all these problems.
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