Tuesday, July 16, 2013

Reckless mining and foreign exchange reserves

Iron ore sector properly exemplifies, how irresponsible actions by even a small group results in big losses for country.

In the rush to maximize profit from Chinese economic boom and increased spending in infrastructure by other countries in pre-economic crisis days; many in mining sector ignored guidelines, mined without any concern for environment, destruction of pristine forests etc. Frequent corruption scandals and severe environmental losses eventually brought courts in to the scene. Unlike executive and bureaucracy courts didn’t hesitate in banning mining activity itself (in Karnataka, Goa, Odisha etc).

Consequences were serious. India, which once classified as a major exporter of Iron ore imported around 3mn tonnes in the year ended in March 31. Please note that, even in the year ended on 31 March 2011 India was the third largest exporter with 98mn tonnes. According to Business Standard report, in the last quarter (ended in June 30) India imported 1,85,113 tonnes of iron ore.

As courts are slowly lifting ban from different leased out blocks, production is slowly gaining speed.

At present China is witnessing a cooling down, other economies are also sluggish. Will the demand for iron-ore once again go back to pre-crisis days? May be, but not anytime soon.

Take a look at the economic consequences of reckless mining and subsequent banning. 1. We lost good amount of foreign exchange from Iron ore export. 2. At the same time, our own forex reserves take a hit due to payouts for iron ore (and coal as well) imports. That too at a time, when India is struggling with massive Current Account Deficit (CAD) and high forex outgo in the form of debt repayments.

Hence it is important for the government to come up with proper policy guidelines. Not the excessively regulated ones (which will definitely results in bigger corruption scandals). Neither the one where ‘No Go’ areas become ‘Go’ areas over the night nor the ones which ignore or try to minimize the ecological, environmental cost of mining. A straight forward policy (not the ones which even the lawyers can’t understand) coupled with transparent process cycles can do wonders.

PS: Banning did some good things as well. An importing point is the revival of ecological balance in some areas. Mining is not an environment friendly activity (especially open pit ones) but there are ways to minimize the impact, even though it will reduce profits. For the very future of India, it is important for governments and courts to monitor and regulate mining activities. Just take a look at this picture by Praveen Bhargav to visualize the ecologicalcost of mining - 'Bhadra River Recovering after Stoppage of Mining inKudremukh' - Conservation India



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