Why a country flush with natural resources finds itself grappling with their shortage.
Billionaire Lakshmi Niwas Mittal has the uncanny ability to work successfully with governments of all kinds across the globe. That, and his unbridled ambition, have enabled him to set up or acquire steel factories in 20 countries. But the man who created the world’s largest steel empire from scratch tasted the bitter fruit of failure when he decided to invest in his country of birth – India.
In a bid to capitalise on India’s huge iron ore deposits and rising steel consumption, Mittal in 2005 announced plans to set up a steel project in Jharkhand that year and in Orissa the next. Later, he proposed another mill in Karnataka. The total intended investment was $30 billion.
In July this year, ArcelorMittal, Mittal’s company, scrapped its $12-billion mill in Orissa after having failed to acquire land and iron ore mines for seven years. Its other projects have not yet been called off, but are also facing delays. Mittal’s decision came just a day after South Korean steelmaker Posco, the world’s fifth-largest, abandoned a $5.3-billion project in Karnataka for similar reasons.
The two developments highlight how the Indian mining environment is scaring investors away. So, what is going wrong?
Mining has faced multiple problems in recent years. There have been problems in acquiring land for new mines and delays in government approvals. Increased judicial scrutiny following corruption scandals in the allotment of mining blocks and environmental degradation caused by illegal mining have made matters worse.
The Comptroller and Auditor General of India, the country’s top auditor, said in a report last year that a flawed coal mine allocation process resulted in a notional loss of Rs 1.86 trillion (one trillion equals 100,000 crore) to the exchequer.
Following the report, the Central Bureau of Investigation filed cases against several companies including leading ones such as Jindal Steel & Power and Hindalco, as well as a few company executives and former government officials. The companies and executives have all denied any wrongdoing.
No wonder the mining sector shrank 0.6 per cent in both 2011/12 and 2012/13 – at a time when the overall economy was growing. In fact, had the government managed the mining sector better, one of the biggest problems it is grappling with today – the large current account deficit – may not have arisen.
How? India imported coal worth over $15 billion in 2012/13 while its iron ore exports were negligible compared with about $7 billion a couple of years ago. Had there been no coal imports and had iron ore exports continued, the current account gap of $88.2 billion in 2012/13 (4.8 per cent of gross domestic product) would have been a relatively comfortable $66.2 billion (3.6 per cent).
That’s not all. “Developing our natural resources and the resultant growth of manufacturing can generate enough funds for infrastructure, alleviate poverty and create employment for at least five crore people,” says Anil Agarwal, Chairman, Vedanta Group, who is also facing problems investing in the sector.
India is rich in natural resources. The country produces as many as 87 minerals including fuel, metallic, non-metallic, and atomic minerals.
Among the minerals, reserves of coal, iron ore and bauxite are vast and will last decades. India’s coal reserves of 293 billion tonnes are the fourth largest in the world and account for nearly 10 per cent of global deposits. Bauxite reserves of 3.5 billion tonnes and iron ore deposits of 28.5 billion tonnes are the fifth and seventh largest, respectively, in the world.
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