Monday's budgetary exercise had for Goa some of what the state government and industry had been demanding --- a reduction in export duty on the state's export oriented mining industry. Export duty on iron ore fines with iron content below 58% is down from 10 % to zero, the duty on lumps is down from 30 % to zero. This tops the concession made in an earlier budget, that only reduced the export cess on low grade fines from 30 % to 10%. Now that the cess is reduced to nil, the state government is putting out the impression that resumption of mining is imminent.
The reality is a little more complicated. Extraction of ore has been stalled since September 2012. People in the industry admit that since then, the international price of low grade ore has had a free fall from $ 100 a tonne and has tanked at around $ 30-40 a tonne currently, depending on alumina and silica content.
To add to this, Goa and India have been out of the market as an ore supplier for a while now. Some in the industry suggests it takes a while to convince buyers and regain the earlier position as a reliable supplier in the market place. There is the suggestion that India's near total exit from the international supply chain of ore, has created a negative image as a reliable supplier. And this will take a while to build up.
Politicians though, have other compulsions and no patience with the nitty gritty. Having buoyed hopes among its constituents that it is doing all it can to create conditions for resumption, the party in power has no option but to see that hope floats, at least until the next election.
The industry is of course, more circumspect. They have welcomed the cess erasure in the central budget and said it sets the stage for resumption of mining. There are corollaries though. These have been set out in the long list of demands its associations have placed before the state government. It wants reduction in fees and taxes that have been imposed by the state government, including registration fees, permit charges and other levies. The chief minister has said the file to reduce all these by 90 % has been cleared, arguing that a full 100 % reduction is not prudent.
Economics though, also has its own compulsions, and so the word play between the government and the mining industry skirts around the issues and buys both time. Welcoming the budget cess removal, Chief Minister Laxmikant Parsekar is reported to have made the point that “I am not speaking only in terms of mine owners, because this decision will also benefit barge and truck owners as exports will resume”.
Speak to the industry, and they are clear that the ball, according to them, is still in the state government's court. In that the promised state government waivers of fees has to be notified and made a reality, before the industry can even get moving to approach potential buyers. With just three months to go before the fair season closes down for the monsoon lull, the projections are being pushed further to September 2016, for any real pickup. Not that the volumes of export are expected to be exceedingly high either, given the low international demand currently. “Some cash flow can be expected immediately” is the best case scenario for the immediate short term, say industry insiders, with the rider that the state government act first to “notify” the levy drops it promised. “Some movement is possible, subject to demand”, is the way industry is looking at the sector currently.
All this is in keeping with the way Goa's mining exports have traditionally functioned. When international prices dropped, exports slid to a trickle. When prices hiked, exports also picked up. The problem for the current government is that the boom years post 2005 expanded the dependency on mining, both in terms of volumes of people, material and inventory (trucks, barges, machinery) involved, and the associated pulling out from other agrarian and rural sectors to plug into what was then a money-spinner. When boom years go bust, the collateral economic damage is never easy. Embroiled as it has been in the mining rescue packages for truckers and the barge industry, having drawn political capital from strategic pre election dispensation of bail outs from the public exchequer, current political managers find themselves unable to name the elephant in the room. To call a spade a spade, or take game changing decisions.
At the macro level, ecologists, calculating the economics of permitting exports of low grade ore, sans any real returns to the public in duties, aside from royalty payments, are questioning the economic logic. For one, they argue that there is the “Make in India” slogan of the Centre. Besides a standing committee recommendation to Parliament that primary resources be preserved for domestic development, must hold more weight. More so when international prices are not economical enough to sell primary mineral material like ore. Or justify exports on the plea of foreign exchange earnings.
Faced with an election perhaps less than a year away, with full scale mining resumption yet to take place, presents a political challenge to the current government in assuaging its constituency in the mining areas. For purposes of political management, the recent announcement gives it some breathing space. But not for too long.
