The Centre and key mineral producing states are likely to incur a revenue loss of up to Rs 12,000 crore in FY21 due to lower coal and mineral consumption during the coronavirus lockdown, a report said on Friday.
"As per our estimates, the top five mineral producing states are likely to see an impact of around Rs 3,000-3,500 crore in all, due to decline in offtake of minerals (other than coal).
"Correspondingly, just from these 5 states (Odisha, Rajasthan, Chhattisgarh, Andhra Pradesh and Karnataka) the Central government is also expected to lose Rs 1,000-1,500 crore - as its share of taxes such as NMET, CGST and Corporate tax - due to fall in mineral sales (excluding coal) in these 5 states," KPMG in India said in its thought paper titled 'Impact of COVID-19 on the mining sector in India'.
With regard to coal producing states, it said "the overall losses incurred by all the state governments combined is estimated to be around Rs 4,500 - 5,000 crore. And the overall loss that the central government would be facing in FY21 is estimated to be around Rs 1,800 - 2,000 crore."
"This excludes losses on account of lower revenue generated from explosives, OTR tyres, bulk logistics, value addition, mining related services, etc," it added.
Falling demand as a result of the nationwide lockdown, decreased consumption and supply chain issues have forced the miners to either run at significantly lower capacity utilisation, or close operations temporarily, it said.
"As an immediate consequence of this subdued production from mines is fall in revenues from mining sector for the governments," it said.
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"Considering the scenario at the end-use consumption side, reduced construction activities is likely to lead to a reduction in the consumption of steel and cement in FY21, thereby affecting the production of iron ore and limestone respectively.
"Similarly, slowdown in manufacturing activities in the industrial sector is likely to impact coal fired power generation, thereby hitting the production of, and royalties and taxes from, thermal coal," it said. The demand for several other minerals might also be hit, it said.
It further said the government's plan to auction new coal and mineral blocks is likely to get delayed due to COVID-19.
"COVID-19 is likely to delay operationalisation of recently auctioned iron ore mines. Moreover, weak demand from key end-use segments like power, steel, cement, etc. and distressed condition of company financials may dampen the response in the proposed auction of coal and mineral blocks," it said.
"Apart from health, at the core of the recovery process from COVID-19 lies employment and revenue generation for central and state governments.
"Mining addresses those needs strongly, hence there is understandable emphasis on opening up the sector. The discontinuity caused by COVID-19 provides the opportunity to deal with longstanding problems in the sector and unshackle its development," said Anish De, Partner and Head - Energy and Natural Resources, KPMG in India.
"Even before COVID-19, India's mining sector was getting hemorrhaged by multiple regulatory, social, and environmental challenges. This was affecting our Melt in India and Make in India intent and weakening our strategic sectors.
"PM has recently called upon the nation to be self-reliant. It will not happen with incremental changes. Fundamental changes in exploration, resource allocation, infrastructure development and mining operations have to happen. The window of opportunity for that is narrow and it is open now," Niladri Bhattacharjee, Partner - Mining & Metals, KPMG in India said.
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