Hit by a dip in production of coal from Coal India Ltd (CIL) and gas from private sector major Reliance Industries Ltd (RIL), the mining sector is set to contract by 2.2 per cent this year. The sector grew five per cent in 2010-11. While the mining sector accounts for around three per cent of India’s gross domestic product (GDP) on a standalone basis, a dip in mineral output creates a ripple effect on major end-use industries in the key infrastructure sectors of power, steel, cement, fertiliser and oil and gas.
A sharp contraction in mining output, coupled with a 40 per cent decline in iron ore production, forced the government to peg India’s economic growth rate at a dismal 6.9 per cent for the current financial year. The latest GDP projection is the lowest in the past three years and is in sharp contrast to the previous financial year’s 8.4 per cent growth.
Shares of RIL, India’s biggest company by market capitalisation, on Tuesday closed at Rs 844.7 at the Bombay Stock Exchange, up 1.4 per cent, compared to the previous close. The company has been struggling to ramp up production from its flagship KG-D6 field. At Rs 325.3, CIL’s shares on Tuesday closed 0.5 per cent lower. The company had crossed RIL to emerge as the most valued firm, with a market capitalisation of Rs 251,296 crore on August 17.
“CIL’s production, which is very significant for mining output, has been hit due to delays in clearances for new projects and heavy rains in areas where its coalfields are located. On regulatory hurdles, while we do not see the situation improving in the short term, there is likely to be an improvement over the next two years, as mechanisms for speedy clearances are put in place,” said Bhavesh Chauhan, research analyst at Angel Broking.
CIL, which accounts for over 82 per cent of the domestic 530- mt coal output, saw production fall this year. The production fell 1.6 per cent to 335.9 mt between April and January, compared with 341.4 mt during the same period of the previous financial year.
Apart from the delays in securing environmental clearances, heavy rains in major coalfield areas and workers’ strikes contributed to the fall in output. Problems in land acquisition for new projects and law and order issues also took a toll on output this year. “As on date, we have 178 forestry proposals awaiting clearance. Also, as 90 per cent of Coal India’s production comes from open-cast mining, production has been affected due to land acquisition issues,” former chairman N C Jha told Business Standard.
Coal India has already scaled down this year’s 452 mt production target to 440 mt. “We had huge negative growth in the three months of August, September and October due to rains. And, we fell short of the year’s target by around 26 mt,” Jha said. The company has been trying to record growth of 10 per cent during the quarter ending March to make up for the shortfall.
In the petroleum minerals sector, gas production from the RIL-operated KG-D6 block during the nine months ended December fell nearly 22 per cent to 436.40 billion cubic feet.