With mining sector in pits, GDP growth to take big hit
An unprecedented crackdown on corruption in India's mining industry, led by the Supreme Court and state-level agencies such as Karnataka's Lokayukta, coupled with rigorous enforcement of environmental norms is resulting in collateral damage to the economy, with plunging mining output leading to a fall in industrial production and GDP growth.
The suspension of mining activity by the Supreme Court across large parts of Karnataka, after a committee appointed by the court detected widespread damage to the environment, combined with restrictions on ore exports in many states was reflected in a 7.2% decline in mining output in October this year.
Production of minerals declined at an annual rate of 2.2% during April-October 2011 before the sharp October fall. "At least 10% of GDP is expected to witness significant slowing down due to the mining bans and delays owing to an array of environmental clearances," said Jyotinder Kaur, economist, HDFC Bank.
Mining and quarrying activities account for 14% share of the index of industrial production while industry contributes around a quarter of the aggregate GDP.
Analysts say stepped-up scrutiny of the mining sector, which accounts for 5% of the $1.4 trillion economy, is evolving into an economy-wide crisis as the increased uncertainty is discouraging investment in sectors such as steel and power.
The crackdown on illegal practices in the mining industry has been welcomed by many and has come to be generally associated with the nationwide campaign against corruption headed by activists such as Anna Hazare.
In Karnataka, Gali Janardhan Reddy, mining baron-turned-politician, was arrested in September and charged with illegal mining after he was indicted by Karnataka's Lokayuta.
In the same month, the Supreme Court suspended mining in Bellary, Chitradurga and Tumkur districts, though the ban has since been modified. Karnataka accounts for 18%, or 40 mt, of the national output.
But the clean-up has come for a price. In the September quarter, GDP growth fell to 6.9%, the slowest in two years, and the trend could worsen judging by the October IIP figures.
"The courts must take a more holistic approach towards the problem and balance ecological factors with developmental factors," said a senior counsel who is closely associated with the mining case in Karnataka.
Declining mining activity is also beginning to impact state finances. The Karnataka government has already reported a .` 400-crore shortfall in non-tax revenues during fiscal 2011-12 due to a ban on mining activities.