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The NMDC mines in Donimalai. (Aniruddha Chowdhury/Mint)
The NMDC mines in Donimalai. (Aniruddha Chowdhury/Mint)

Karnataka clears NMDC application to resume mining operations at Donimalai

  • The decision came after Pralhad Joshi, Union Minister of Parliamentary Affairs, Coal and Mines intervened in the matter and held detailed discussions with the state government to allow mining operations in Donimalai

The B.S. Yediyurappa-led government in Karnataka has cleared National Mineral Development Corporation’s (NMDC's) application to commence mining operations at Donimalai, two years after production was suspended in the seven-million-tonnes-per-annum mine in the mineral-rich Ballari district of Karnataka.

The decision came after Pralhad Joshi, Union Minister of Parliamentary Affairs, Coal and Mines intervened in the matter and held detailed discussions with the state government to allow mining operations in Donimalai.

In July last year, NMDC had announced that the mine would resume operations, after a decision favouring it was given by the Karnataka high court. NMDC then approached the government of Karnataka to facilitate execution of the lease deed and resumption of operations at Donimalai mine.

“Since production was halted, it affected the state’s earnings," said J.C. Madhuswamy, Karnataka’s minister for law and parliamentary affairs on Tuesday. He said resumption of operations of the mine would bring in revenue of about Rs647 crore to the state.

“The resumption of mining at Donimalai would avoid further loss to national and state exchequer apart from providing much-needed iron ore to the steel industry for the development of the State," NMDC had said following the high court's decision.

Donimalai accounts for about 18% of the NMDC’s production, according to a report by Bloomberg Quint. Cash-starved Karnataka is hoping that this decision, among others, would help bring in much-needed capital.

The state will also borrow an additional Rs33,000 crore to make up for revenue shortfalls and to fund development works in the state, said a senior cabinet minister. "We are now raising around Rs33,000 crore for development and other activities," said Madhuswamy.

The state cleared an amendment to the Fiscal Responsibility Act, which allows it to borrow up to 5% of GSDP from the earlier 3% cap.

This additional borrowing has been induced on account of lower revenue inflows and to make up for the shortfall in goods and services tax (GST) compensation from the Centre.

This additional borrowing would take the total debt of Karnataka to beyond Rs80,000 crore, Madhuswamy said.

The Yediyurappa government had in the budget stated that it would borrow nearly Rs53,000 crore due to revenue shortfall of about Rs20,000 crore in the ongoing fiscal.

On 2 September, Karnataka government decided to choose the first of the two options given by the Centre to make up for the shortfall in goods and services tax (GST) compensation.

Under this, Karnataka would be eligible for total compensation of Rs18,289 crore. Of this, Rs6,965 crore would come from cess collection. The remaining Rs11,324 crore would be borrowed through a special window with the entire burden of principal and interest repayment being met out of (the) compensation cess fund in the future," the state government said at the time.

The first option would also relax some conditions that allow the state to borrow capital over the 3% cap without being linked to large-scale reforms as outlined by the economic stimulus package announced by the Prime Minister Narendra Modi-led centre in mid-May.

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