While the government has raised royalty rates for minerals, agreeing to the long-pending demand of the states?this will raise the revenues of mineral-rich states Jharkhand, Odisha, Goa, Chhattisgarh and Maharashtra by 41% from R9,406 crore in FY12 to an estimated R13,274 crore now?the real problem is increasing their production to meet the domestic demand. Take the case of iron ore, for which the rate has been hiked from 10% to 15%; the steel producers will bear the extra cost which will ultimately be passed on to the consumers. The ore production has dropped from
218 million tonnes (mt) in FY10 to about 135 mt in the last two financial years. The need is to resolve the pending environmental and mining lease issues affecting extraction, especially in states like Karnataka and Goa. Royalty rates have not been hiked in coal, but the far bigger problem for industry is of production falling short of the demand. While the domestic coal production in the last four years has been growing at 3.2% per annum exceeding 500 mt in FY14; consumption during the same period has grown by 6-7% per annum.
This has increased the share of imported coal in the domestic consumption from 54 mt in FY10 to 138 mt in FY14. The worrying part is that the $12 billion import bill is expected to double by FY17, and though a CRISIL report estimates the imported coal price to remain lower between $73-82 per tonne in the next three years as compared to an average $94 per tonne during 2008-13, the apprehensions of a steep decline in Coal India?s production in the absence of required mining clearances and construction of attached rail links must be addressed quickly. This is the real problem for users across all mining sectors, not a hike in royalties.