Coal And Mineral Demand During Covid-19
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This Blog is written by Ayushi Aggrwal from University of Petroleum and Energy Studies, Dehradun. Edited by Harshita Yadav.
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INTRODUCTION
The natural resources or the “gifts of nature” are essential raw materials for modern economies that boost and ensure stable as well as progressive growth of the economy. India has a huge amount of natural resources due to its geographical location; it has fourth largest reserve of coal on the earth and consequential reserves of other minerals such as thorium, bauxite, mica, iron and manganese ore, mineral oils, natural gas etc.
According to the Annual Report of 2018-19 released by Ministry of Mines, the bulk of value of mineral production (nearly 90%) is confined to only 10 states. Among them, Odisha is the leading producer followed by Rajasthan, Andhra Pradesh, Chhattisgarh, Karnataka, Telangana and Gujarat. For these states, mining is a major source of income which also provides employment to a large number of people. But due to coronavirus lockdown these states could suffer heavy losses.
The outbreak and rapid spread of contagious coronavirus has badly hit the economy of mining sector in India. The imposition of lockdown for containing the spread has weakened the demand for minerals across the globe and has disturbed the whole administrative and management process of this sector. After lockdown, companies and organization have a restricted access to working sites and manufacturing units, the transport facilities and import-export of goods are also restrained.
A report has said that Centre and State Government could incur a loss of 10,000-12,000 crores in FY 21 due to less consumption of coal and other minerals during coronavirus.[1] According to a paper titled ‘Impact of COVID-19 on the mining sector in India’ by KPMG, India, the top five key minerals producing state could incur a loss of around 3,000- 3,500 crores altogether (excluding coal) due to decrement in intake of minerals. In addition to this, according to the paper, in only top five mineral producing states, the Central government could suffer a loss of 1,000-1,500 crores (excluding coal) as its share of tax in terms of CGST, NMET and Corporate Tax, due to fall in sale of minerals.
Furthermore, with respect to the states producing coal the paper estimated that the sum total of entire losses incurred by all the states could be 4,000- 4,500 crores and the total loss which could be suffered by Central government in terms of its share in various taxes could be 1,800- 2,000 crores for FY21.
Moreover, the paper discussed the reasons due to which governments would be suffering losses in mining sector. It said that amid nationwide lockdown due to reduced consumption and inappropriate supply chains the miners are forced to run organizations either on lower capacity utilization rates or have temporarily closed their operations. As a result, there is an immediate fall in revenue from mining sector for the government. Secondly, due to reduced construction activities, consumption of steel and cement has also been reduced for FY21 which is affecting the production of limestone and iron ore respectively. Lastly, due to slowdown in industry’s manufacturing activities, the fire power generation through coal has been impacted which has hit the production of, and tax and royalties from thermal coal.
The paper also said that apart from health, the governments both at centre and state level should create employment and generate revenues in the mining sector for its recovery. Further it said that discontinuity caused by coronavirus in the mining sector has provided an opportunity to deal with enduring problems and emancipate its development.
SIGNIFICANCE
Importance of Minerals
The significance of earth’s deposit can be explained through its various uses. The various types of ore such as iron, copper, gypsum, limestone, silica, mica etc., are highly useful in construction of buildings and infrastructures. In agriculture to make fertilizers, potash, lime and phosphate rocks are used. Also to improve the quality of soil and to purify water to make it fit for our consumption various minerals are used. The metallic minerals such as gold, silver, iron, copper, aluminum are used for producing utensils, jewelry, coins etc. Some other uses of minerals are to produce electronic equipments, weapons for defense, cosmetics etc.
Significance of Covid-19 in Decreased Demand of Minerals
The problem of coronavirus in all of the countries is not only restricted to contain its spread but also to protect economies from entering into the situations prevailing during Great Economic Depression. The outbreak of coronavirus has not only impacted lives on planet but also various sectors of economies and mining sector is not unsusceptible to it. Due to contraction in construction activities, industrial production, shipping and transport facilities and disturbance in supply chain amid nationwide lockdown, demand for minerals has been falling, directly affecting revenue generation of the states.
Significance of Contraction in Demand of Minerals due to Covid-19
In Domestic Market, the fewer number of economic activities has resulted in lesser demand for minerals in the country which is straight away affecting the revenues of government from mining sector. The disrupted supply chain due to inappropriate manufacturing, transportation and storage facilities has put the mining industries on the barge of temporary closure of their operations which has directly affected the employment rate of the country. The contraction in demand will also lead to delay in operationalization of newly auctioned mineral ores which will further decrease the number of bidders coming for bidding of these ores.
In economics, according to the law of demand and supply whenever demand exceeds supply, the price of the commodity increases but whenever supply of a product exceeds the demand of the product, its price falls. If we apply this law in present situation same will happen with prices of minerals in foreign market. Due to Covid-19 outbreak, production and construction activities are on halt in a major part of the world. As a result of which, demand for the key minerals will be reduced and this reduction in demand will result in fall in prices of these minerals in the international market. The fall in prices of minerals will further lead to less foreign exchange in the economy.
IMPACT OF DECREASED DEMAND OF COAL AND MINERALS DURING COVID-19
The Economic Impact
The nationwide lockdown has promoted most of the businesses to go online and work from home. In the long term, it could be estimated that most of the companies will try to install more and more machineries to be more capital intensive rather than being labor intensive. Amid coronavirus, it is advised that organizations should promote social distancing and work with only 50% of its workforce on the basis of alternative days. It is unpredictable as to how long it will take to create vaccine and treat coronavirus, so industries and organizations to keep their businesses operational will decrease man power and increase mechanical power. In order to deal with future situations of pandemics as well, organizations will try to become less dependent on labors. The same factors and reasons could affect workers of mining sector, as more high-tech machineries could be installed for extracting and manufacturing minerals which will directly decrease the employment rate under this sector and increase poverty.
The Environmental Impact
All of us are well aware of Sustainable Development Goals (SDGs), designed for a better and more sustainable environment for future generations. The depletion of natural resources for economic development has created a threat on subsistence of these resources. The contraction in demand for these minerals will result in lesser extraction of these minerals and thus ensuring more and more reserves for future generations.
The extraction and use of coal is hazardous for environment as it causes both air and water pollution. The acidic water produced during mining of coals is causing adverse effect on quality of water because treatment of this acidic water could be done through an expensive and energy intensive reverse osmosis or processes similar to it but unavailability of adequate resources makes installation of such process difficult.
Further, due to coal mining quality of air is also being deteriorated. The uncontrollable underground fires and power stations burning-coal is emitting toxic compounds such as carbon monoxide, carbon dioxide, sulphur, methane, mercury, lead which has the potential to affect the mine workers and communities living near coalfields. The fall in demand for coal has decreased the emission of toxic substances in environment, reducing pollution levels in the world.
STATUTORY PROVISIONS
The mining activities of India are regulated mainly through The Mines and Minerals (Development and Regulation) (MMDR) (Amendment) Act, 2015. This amendment has been brought in the act after a prominent ruling of the Supreme Court in Manoharlal Sharma v. The Principal Secretary[2] the court has cancelled the allocation of coal block made by Central Government during 1993 to 2011 on the ground that allocation was not made on the basis of due procedure prescribed by law. The amendment has brought stricter rules for illegal mining, greater transparency, infused greater ease of doing business and removed discretion from the process of allocation. It has also formulated a National Mineral Exploration Trust to conduct detailed exploration on regional basis.
CASE STUDY
The Influenza Pandemic of 1918-19
In USA during 1900s, coal had been used more prominently as compared to in present-day world for industrial and other purposes such as generating heat and power. The supply of coal disrupted badly by outbreak of ‘influenza pandemic’ also known as ‘Spanish Flu’ in January 1918. Both coal and copper mining plants were paralyzed due to outbreak, the minerals became difficult to obtain and supply of these minerals diminished. The pandemic reduced the availability of coal as most of the mines were closed and operational ones were producing with fear of depleting resources. The shortage forced the Health Department to ensure heating situations in the country mainly for sufferers of influenza.
The need for coal increased so much because of lesser labor and high demand from manufacturing sector, since during outbreak of the influenza pandemic, World War I (1914-18) was going on and most of the workers had left for war. The demand from manufacturing sector had also been increased for production of defense weapons, which largely depends on coal. But insufficient workforce but huge demand for coal has caused the shortage of coal in the country.
The deaths caused by influenza epidemic are so much in number that it was called as ‘the greatest medical holocaust in the history’ but U.S.A eventually recovered from it. The workers devoted more hours and efforts towards production of coal. The end of World War I, reduced the burden of producing coal for manufacturing sector.
CRITICAL ANALYSIS
The contraction in demand of minerals has been mainly caused due to coronavirus epidemic. The vaccine for this contagious virus has not yet been developed so the only possible way to contain its spread is lockdown. The nationwide lockdown has very much affected the economy of India. The mining sector is one of the worst hit sectors of Indian economy. The lower levels of production, manufacturing and decreased construction activities are major reasons behind downfall of demand for minerals. The social distancing norm to avoid being caught by coronavirus has decreased level of employments in this sector. But the point is that this problem of pandemic is not new, world have already suffered with an air-borne disease (influenza) in past and its effect on mining sector are also well- known. It could be said that the decision of lockdown was taken hurriedly by the government as various impacts of it were ignored during its implementation. To boost the economy of mining sector, government should infuse money and create employment opportunities with necessary safeguards. The reduced demand for minerals including coal has undoubtedly caused a greater harm to the mining sector but the advantage which it would have provided to environment are also admirable.
CONCLUSION
It could be said that Covid-19 has affected economies at large and under mining sector the effect is due to drop in demand of minerals. In both, domestic and international markets the reduction in demand will affect prices of these minerals. On the one hand, government is already facing losses due to low demand and on the other hand these losses will be aggravated due to fall in prices of the minerals. The long term impact of lockdown will result in more use of capital intensive techniques and less use of labor intensive techniques to decrease the effect which could be caused due to future pandemics. The impact of decrease in demand of minerals on environment has been positive due to less emission of harmful substance and less depletion of these resources. No provisions have till date is made for dealing with losses caused due to these pandemic in mining sector even when a similar pandemic has occurred in past. To overcome this situation of getting affected by a pandemic, the government should focus on generating and infusing revenue and creating employment under this sector with important safeguards required to be adopted for protection from coronavirus.
REFERENCES
[2] (2014) 9 SCC 516
Very informative article. Nice work ????
Great work???? thanks for the information.