July 2015: Moving Closer to Electricity for All?

Lydia Powell and Akhilesh Sati, Observer Research Foundation

The nuclear deal between Iran and the United States was the most significant development in July 2015 not just in the context of global geo-politics but also in the context of global energy markets. Iran has the potential to contribute to the supply of oil and gas to an extent that will affect the price of these key energy commodities. This may not be good news at this point in time. The likelihood of Iran adding 500,000 barrels per day (bpd) of oil supplies in the near term is not exactly what the oversupplied market needs. The prospects of an increase in gas production have also improved but this is yet to affect the market as it is expected to some time to materialise.

Comments from India on the Iran nuclear deal have focused on how the lifting of sanctions imposed on Iran would mean more oil imports from Iran and also on the possibility of the revival of the Iran-Pakistan-India pipeline. Increase in Iranian oil production will definitely depress global crude prices and this will benefit India by way of lower oil import bills. Lower import bills have been projected by policy makers and political leaders as an achievement of their effort but what they have failed to realise is that lower oil prices are a sign, not just an oversupplied market but also a slowing global economy. Savings on energy import bills may not automatically translate into spending and investment that would boost economic growth. The line of causation between energy, particularly oil consumption (and prices) and economic growth runs both ways. Crude oil prices are high when economic growth rates in India (and other large energy consumers like China) are high and consequently their contribution to oil demand growth is high. Crude oil prices are low when economic growth rates in India (and China) are low and their contribution to oil demand growth is low. What this means is that oil prices are low when our economy has the lowest capacity to make use of it. But overall the persistence of lower petroleum prices is a positive development as it will contribute to price stability.

Chart 1

image (1)

P: Projection

Source: Energy Information Administration & IMF   

Among other news that made it to the headlines in July was the Prime Minister’s visit to Central Asia. Most official visits to net energy exporting countries generate news on how the visit would contribute to energy security. The PM’s visit to Central Asia was no exception. The idea that a visit to a net energy exporting country followed by a Memorandum of Understanding (MoU) or two will automatically lead to energy security is accepted without any questions. But when even the much celebrated nuclear agreement with the United States has not translated into greater energy security, what can one expect from simple MoUs from relatively small countries?

In July the news on gas was confusing. On the one hand we saw news that ONGC was cutting gas production as well as news on private companies relinquishing their interest in potential prospects. On the other hand we also saw news on India getting LNG from Canada. If both are true, there is something wrong with policy making in India. How can poor country like India discourage domestic gas production (that could increase energy supplies, reduce carbon emissions and also generate employment and taxes domestically) and encourage the same in a country that is far richer than India? Why is a poor country desperate to subsidise a rich country? To add to the confusion we also saw news on credit rating agencies warning about the financial viability of LNG re-gasification projects.

Chart 2

image (2)

Source: Ministry of Petroleum & Natural Gas

In the power sector, the most important news in July was the repackaging and re-launching of the Rajiv Gandhi Vidyudikaran Yojana as Deen Dayal Upadhyaya Gram Jyoti Yojana with an outlay of Rs 76,000 crore. The ever moving target date for providing electricity for all and the ever changing names of schemes that are supposed to provide electricity for all does not inspire hope.

As for solar energy there was little that was new in July except for the fact that the last energy project that the much loved departed leader Dr Abdul Kalam inaugurated was a solar energy project. Dr Kalam dreamed of a developed India. It is probably good that he did not live to see that his dream is likely to remain a dream! 

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 7

 

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No Clean Energy Resource is Cheap

Ashish Gupta, Observer Research Foundation

In Indian context, the discourse on climate change is dominated by the war on fossil fuel used and calls are made to impose an embargo on fossil fuel use. All sorts of renewable and low carbon technologies are promoted as sources that would replace fossil fuels and mitigate carbon emissions. The big question is this: Is coal the dominant choice only for developing countries? Do developed countries not gain from using coal? Coal was the dominant choice for electricity generation in developed countries three four years back. Even today two fifths of world electricity comes from coal fired power plants in developed countries. Interestingly, Europe which wants to be seen as world leader in climate protection is consuming more and more coal. Coal consumption in Europe is growing as it is still a low cost fuel. What this highlights is that the switch to alternate sources will be guided by economics irrespective of whether you are a rich or a poor country. It should not be a problem to understand that India faces the same choice.

Interestingly, hydro (a renewable source) is not counted as a renewable source though small hydro (less than 25 MW) is counted as renewable. There is no consensus whether to count big hydro projects as renewable. Only run of the river project are considered as renewable projects and not the storage ones. The trade-off between environment and development are never acknowledged in these discourses.

Renewable energy is promoted as the best option for mitigating carbon emissions and energy security but the ground reality is quite different. On the cost front, the capex cost of solar projects has came down drastically to about Rs 60 million/ per MW but when all costs including all the incentives and subsidies are taken into account, the cost is nearly about Rs 300 million/ per MW[1]. The same is true for the wind projects as well. Despite the high capex it is promoted as a source with low tariffs. This argument can be discredited using a hypothetical example.

Let us assume that a company has got a project quoting a low tariff of Rs 6/unit. Consumers may assume that they will have to pay the same tariff but in reality they have to pay more. The consumers have to pay a fixed charge for conventional backup which is around Rs 2/unit or 2.5/ unit[2]. The actual tariff for the consumer will be Rs 6 + Rs 2 = Rs 8/ unit.

The idea of enforcing renewable obligation on the industry is also promoted. This obligation may make roof-top solar projects viable. The idea sounds promising but what is missing is industrial cost dynamics. In India, the Industry is already cross-subsidising domestic consumers by paying high tariffs. If they start consuming their energy through renewable sources then they will have to pay renewable source tariffs plus the cross-subsidy amount. Can Industry remain competitive under this heavy burden?

The idea of introducing Carbon, Capture and Storage (CCS) technology is premature. Given the negative impacts of burning coal, the concept of CCS is good but the technology is not commercially viable and it is still in the demonstration stage.

In 2012, the states in USA which were generating electricity through coal paid an average of 8.8 cents/kwh in USA while the states that curbed coal electricity generation paid 12.44 cents/ kwh. The low coal states actually ended up paying 26% more than the average national price of electricity. Apart from this coal was responsible for providing 760,000 jobs. Ever since CO2 mitigation became a concern, many coal companies started working on the ‘green coal’ concept. It was not by choice but by force. Things started moving when Congress in 2009 pursued the Climate legislation. The American Coalition for Clean Coal Electricity initiated a ‘fact finding tour’ that included the series of videos with expert suggestions detailing how the coal industry can capture the carbon dioxide from coal fired plants. But the result is dismal!

If the technology employed in haste it will be a disastrous for power plants. Needless to say, all the power plants will become Non-Performing Assets. Interestingly if big and rich countries are unable to cope with clean coal strategies how can a country like ours to absorb this expensive technology. The implication for India is to learn lessons from the USA. Go for the abundant indigenous coal reserves rather than unviable alternate sources.

Why CCS is not viable today:

  • Given the ash content in Indian coal, the yield will be very low
  • It is  energy intensive
  • It will reduce efficiency of the power plants
  • Many older plants are of low capacity and very inefficient
  • It will  double costs

There is another futuristic technology which sounds promising but is yet to prove commercial viability. The technology is based on separating carbon through gas membrane process rather than capturing in which waste carbon is not dumped. In this carbon is converted into a commercially viable product. This technology is still at the developmental stage and is highly energy intensive. Apart from that there is no study conducted on the cost of deploying this technology at the power plant and its impact on power tariffs.

All this is indicates that no technology is perfect and no clean source is cheap till now. In India where sustainability is interlinked with affordability, these technology and energy sources must be deployed in a slow and phased manner. Most importantly we must focus on the energy efficiency component where it is proved that even one percent efficiency improvement at the power plant can save five million tonnes of carbon emissions. Given the nation’s interest, bias towards renewable should be avoided and effort must be devoted on making coal sector more eco-friendly. It is imperative for India to make energy choices depending on specific advantages for development irrespective of whether it can be provided through coal, gas, hydro, renewable or nuclear etc. The only thing that needs to be kept in mind that it should be affordable on paper and in practice!

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

[1] Presentation by Former Member, CERC at “Workshop on Awareness and Capacity Building in Carbon, Capture, Storage and Utilisation: Towards a Low Carbon Growth Strategy”, New Delhi, 28th July, 2015

[2] Ibid

Courtesy: Energy News Monitor | Volume XII; Issue 7

 

India’s Energy Sector: About to Take-off?

Lydia Powell and Akhilesh Sati, Observer Research Foundation

India is compared with China as a matter of routine on almost everything. Except when political models are compared, India rarely comes out ahead. The energy sector is no different. The Chinese energy basket is roughly four times the size of the Indian energy basket (if non-commercial energy is included) and six times the size of the Indian energy basket (if non-commercial energy is excluded). Even though China and India have comparable population numbers, India is a distant second or third to China on most energy parameters. This may be about to change, at least in terms of rate of change (albeit from a smaller base) if not in terms of absolute levels of change (Chart 1).

image (1)

Source: BP Statistical Review 2015

BP’s Statistical Review of World Energy Markets for 2015 that captures energy developments at the national, regional and global level for the calendar year 2014 observes that India posted an all time high in energy consumption growth in 2014 and that India regained the number two position in energy consumption growth from the United States. India’s energy consumption increased by 7.1 percent in 2014 compared to China’s 2.6 percent, China’s slowest since 1998 and less than half the ten year average growth rate of 6.6 percent. On the other hand, Indian coal production increased by 6.4 percent while China’s coal production declined by 2.6 percent.  India’s coal production reached a high of 644 million tonnes (mt) with output growing by 38.9 mt, the largest increase in the world for 2014 and the largest ever increase for India.

Despite the speed of change, India accounted only for 4.9 percent of global energy consumption while China accounted for 23 percent. But India accounted for over 34 percent of global consumption increment which is more than half of China’s contribution of net increment in consumption in 2014.

image (2)

Source: BP Statistical Review 2015

India did not score well in the production of hydrocarbons. India produced only 23.2 percent of its gross oil consumption in 2014, the lowest proportion ever according to BP. Natural gas production and consumption continued to decline with both much below their peak levels in 2011. In contrast fossil fuel consumption growth in China was led by natural gas at 8.6 percent.

The fastest growing fuel in India in 2014 was renewable energy which is now six times larger than it was ten years ago. Surprisingly bio-fuels recorded the fastest growth of a staggering 29 percent among renewables. One would have thought that it would be solar energy, given the heavy push that it is receiving. India emerged as the largest contributor to global carbon emissions in 2014 with 8.1 percent growth in carbon emissions compared to China’s 0.9 percent. India’s energy intensity decreased by 0.2 percent, much lower than the ten year average of -1.1 percent. In contrast China’s energy intensity decreased by 4.5 percent.

BP’s long term projections for 2035 which presents only one ‘most possible’ scenario puts India in the lead but only in terms of growth (Chart 2). By 2035, India’s energy production led by coal is expected to increase by 117 percent compared to 47 percent growth in China. Energy consumption in India is expected to increase by 128 percent compared to 60 percent in China.  China’s share in global energy demand is expected to increase from 22 percent to 26 percent by 2035 while India’s share in global energy demand is expected to double to 8 percent.

India’s dependence on fossil fuels is expected to decline to 87 percent from 92 percent today. India’s oil imports are expected to increase by 161 per cent, coal imports by 96 percent and gas imports by 270 percent by 2035. BP expects natural gas to lead fossil fuel growth in demand with an expansion of 145 percent (compared to 270 percent expansion in China) by 2035, followed by oil at 117 percent (compared to 67 percent expansion in China) and coal at 112 percent (compared to just 21 percent in China).  Overall renewable energy is expected to expand by 564 percent (compared to 580 percent in China) followed by nuclear at 363 percent (compared to 910 percent in China) and hydro at 98 percent (compared to 50 percent in China).

image (3)

Source: BP Statistical Review 2015 & World Energy Outlook 2014

A surprising projection from BP that differs markedly from projections by the International Energy Agency (IEA) as well as projections by domestic agencies is that it expects ‘oil’ to ‘remain’ the dominant fuel with a share of 36 percent followed by gas at 30 percent and coal at 21 percent (Chart 3). Even the most pessimistic scenario of the IEA does not give oil and gas higher shares than coal.

For example the 450 scenario of the IEA which minimises expansion of fossil fuels and maximises the expansion of renewables projects a share of 32 percent for coal in 2040 followed by a share of 24 percent for oil and 11 percent for gas. BP also appears to be far more optimistic on the prospects for gas demand growth in India compared to other projections. The assumptions behind BP’s projections are not specified. Three observations can be made at this point.

The first is that projections only reflect assumptions made today not reality that will unfold tomorrow. India’s energy basket may look very different from what is projected by IEA or BP by 2040. No agency projected that more than two thirds of Indians will get their first mobile phones before they get their first light bulb. Something similar could happen in the energy sector if there is a break-through technology that rivals the mobile communications technology of the last decade.

Second it would be incorrect to conclude that China is deliberately moving away from coal and other fossil fuels to clean itself up while India continues to indulge in using fossil fuels. China embarked on a path of high-investment, high-energy growth over a decade ago. This growth is winding down naturally. This growth phase not only lifted more than 500 million out of poverty but has also given China the wealth to indulge in other forms of energy. India has barely begun its growth spurt.

Third it would be unwise to get carried away by India’s energy demand taking off. India’s energy take-off is not necessarily because it has ‘taken-off’ the way China’s did in the last decade. India’s energy demand is growing at a more or less steady phase but India’s growth appears larger because China’s growth is not as large as it used to be (Chart 4 a & Chart 4 b).

image (4)

Source: World Energy Outlook 2014

India’s energy take-off may be an ‘optical illusion’ caused by China’s slow-down. This casual remark must be tested against hard data on changes in India’s energy consumption patterns. We shall begin with the electricity sector.

image (5)

Source: Central Electricity Authority 2015

Chart 5 shows sector-wise changes in consumption of electricity since 1947.  In the last six decades, residential and commercial sectors have doubled their share of electricity consumption (from 10 to 24 percent and from 4 to 9 percent respectively) but the share of industrial consumption has declined from 70 percent to about 42 percent in 2014-15 after peaking at 74 percent in 1960. The share of electricity in traction has declined from about 7 percent in 1947 to about 2 percent in 2014-15 while the share of agriculture in electricity consumption has grown from about 3 percent to about 18 percent after peaking at 26 percent in 1997 (end of the 8th plan period).

Data on sector-wise ten year average compounded annual growth rate (CAGR)[1] is more informative (Chart 6).

image (6)

Source: Central Electricity Authority 2015

Overall electricity consumption has grown by 7.24 percent in the period 2007-2015 compared to 5.65 percent in the period 1997-2007. The sector that has shown significant spurts in electricity consumption growth is agriculture. The ten year period between 1956 and 1966 recorded the highest ever growth rate of 19.6 percent.  The reason is well known. When Pakistan was separated from India, it removed access to water for irrigation from the Indus canal system almost overnight.  India with 82 percent of the population of undivided British India got only half the canal system carrying 400,000 cusecs of water and less than half of 24 million acres of land irrigated by state owned canals.  Consequently the 3rd and 4th plans allocated almost a quarter of the budget for the power sector for electrification of pump sets for irrigation of agricultural land. The result was an unprecedented increase in agricultural consumption of electricity.  Agricultural consumption continued to show double digit growth rates in the subsequent decades. The significant decline in growth rates of agricultural consumption was recorded during the 9th and 10th plan periods (1997-2007) when the average CAGR of agricultural consumption was only 1.6 percent. The period 2007-2015 has recorded a growth of 7.24 percent but this cannot be labelled a growth spurt. It is lower than the average growth of 11.34 percent and less than half the peak growth rate. Across all consuming sectors, growth-rates are below or close to historic average growth rates. This does not necessarily constitute a growth spurt.

The 18th power survey projects a demand of 3710 billion units corresponding to a peak load of 514 GW at bus bar in 2032. The survey assumes the following: 8-9 percent growth up to the end of the 12th plan and around 7-9 percent beyond that period; full electrification by 2017; high growth rate for electricity consumption in states with low per person electricity consumption but with policies in place for T&D loss reduction; restructuring and reduction in overall T&D loss levels to 15 percent barring the North East region and J & K.  For a three-fold increase in power consumption (from 938 billion units in 2015 to 3710 in 2032) in the next 17 years, a CAGR of 8.4 percent in power consumption is required. This is roughly the average CAGR of power consumption since 1947.

image (7)

Source: Petroleum Planning & Analysis Cell

In petroleum products particularly that of petrol (MS), LPG, Kerosene (SKO) and diesel (HSD) that account for 69 percent of petroleum product consumption in India, there is no appreciable sign of a growth spurt, except in kerosene whose consumption is showing a consistent negative growth since 2002 (Chart 7). This may be attributed partly to increase in electrification rates because kerosene is a major source of lighting in un-electrified rural India. The absence of a corresponding increase in LPG consumption growth rates is surprising because kerosene is also a major source of cooking fuel in rural areas. The absence of a significant growth of LPG consumption may be attributed to the limits imposed on subsidised LPG consumption.

Among transportation fuels, the growth of petrol consumption (almost entirely consumed by the transportation segment) has exceeded the growth of diesel consumption (70 percent consumed by the transportation segment) during the 11th and 12th plan periods. About 61 percent of petrol is consumed by two-wheelers and about 34 percent by personal vehicles such as cars. The growth in petrol consumption may be interpreted as a sign of growth in personal vehicles which could in turn mean growth in consumption by middle class households.

image (8)

Source: Society for Indian Automobile Manufacturers

The trend in sales of vehicles shows a significant growth for personal vehicles as opposed to commercial vehicles (Chart 8). Between 2009 and 2015 personal vehicle sales grew at 4.9 percent compared to a growth of 2.4 percent for commercial vehicles. While three wheeler sales grew at 3.2 percent, two wheeler sales grew at 9.3 percent. Long-term projections by the IEA do not show a significant departure from this trend where personal vehicle sales is dominated by sales of two wheelers.

On the whole data from the recent past does not indicate clear signs of a growth spurt in energy consumption.  India’s growth rates in energy consumption may be higher than that of China in the next two decades but India’s growth is likely to be in line with past trends with no significant spurts. This is not necessarily good news.  Even at economic growth rates of 8 percent or more a year in the next two decades India is unlikely to achieve per person energy consumption levels that represent decent quality of life. If we go by projections by the International Energy Agency, even by 2030, 20 percent of the Indian population will have no access to electricity and 46 percent of the population will remain dependent on traditional fuels for cooking. Perversely, this will limit the perceived threat posed by the scale of India’s energy transitions on global boundary conditions such as the global carbon budget.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

[1] Growth as used here is the CAGR

Courtesy: Energy News Monitor | Volume XII; Issue 4

Courtesy: Energy News Monitor | Volume XII; Issue 6

 

Are Coal Import Statistics Reliable?

Ashish Gupta, Observer Research Foundation

In October 2014 when Mr. Anil Swarup was appointed as an Officer on Special Duty (OSD) at the Ministry of Coal (Moc), the first message he received from the Prime Minister’s Office was to ‘revive the coal sector so that the entire economy can rebound’. As a result Coal India Ltd (CIL) has shown a tremendous improvement in production. The data for the core sector in May, 2015 shows the coal sector as one of the best performing sectors, with 7.8 percent growth on a year to year basis. In the month of May 2015, CIL produced 40.9 Million Tonnes (MT), registering a growth of 11.8 percent and in June, 2015, growth continued at 12 percent. While operational success was really impressive a major contributor to this growth was the easing of land acquisition and environmental hurdles. However import of coal has not been reduced significantly and it is anticipated by many analysts that imports are likely to grow in the near future.

Import of Coal from 2009 to 2014:

Coal 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Coking 24.69 19.48 31.80 32.56 37.19 10.87
Non Coking 48.56 49.43 71.05 105.0 131.25 38.59
Coke 2.35 1.49 2.36 3.07 4.19 1.17
Total 75.6 70.40 105.21 140.63 168.44 49.45*

Figures are in MT (* Import up to June, 2014)

Source: Ministry of Coal

The country is importing more coal but power plants are reluctant to lift that coal. Another much touted achievement in the power sector was the reduction of energy and peak energy deficits to a record low at 2.1 percent and 2.6 percent in 2015-16. Unfortunately, this improvement is the result of low demand from the State Electricity Boards (SEBs). Consumption at coal-based power plants also remained unchanged at 219 MT on a year-on-year basis. Many think that it is a temporary phenomenon which will be corrected in future. The question which remains unanswered is who is using imported coal?

Another inconsistency concerning coal import statistics is the situation of distribution utilities in the country. The country’s largest lender, State Bank of India (SBI) has red flagged the power sector as a fast ticking time-bomb that could escalate the banking system’s non-performing assets to an alarming level over the next couple of months. Till March 2014, the accumulated losses of discoms were over Rs 3 lakh crores (around $ 50 bn) and owe over Rs 2 lakh Crores to Banks ($ 33 bn). The Reserve Bank of India stated in last June that Rs 53,000 Crore ($ 8.8 bn) of loans to seven SEBs are most likely to turn into non-performing assets this month after several rounds of restructuring and three year moratorium on principal repayment. The SBI, Chairperson also conveyed banks anxiety to the officials of Power and Finance ministry. Despite a record generation of trillion units of power in 2014-15, the electricity sector is turning into ’problem child‘.

Interestingly, the report on the performance of the state power utilities which showed Delhi discoms as a profit making utilities with an estimated profit of Rs 939 Crores ($ 157 mn) have actually defaulted on money payment to the power producer on many occasions. The six loss making distribution utilities (on subsidy received basis), Andhra Pradesh (Rs 16,668 Crores or $ 2,778 mn), Uttar Pradesh (Rs 13,155 Crores or $ 2,193 mn), Rajasthan (Rs 12,510 Crores or $ 2,085 mn), Tamil Nadu (Rs 11,827 Crores or $ 1,971 mn), Madhya Pradesh (Rs 4,474 Crores or $ 746 mn) and Haryana (Rs 3,834 Crores or $ 639) were all reluctant to buy expensive power. This led to lowering of coal demand in the country, pushed power plants to low utilisation rates and threated to render generation capacities worth millions unviable. In such a situation, who is buying imported coal based electricity? It is necessary to answer this question. Without an answer, the persistent argument that the centre must reformulate tariff policy to allow mandatorily pass-through fuel costs and inflation into tariffs on timely basis will continue.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 5

 

Environmental issues persist not because of mining but due to Institutional failure!

Ashish Gupta, Observer Research Foundation

A multi-cultural developing society like India provides enormous challenges in the environmental, cultural, social, political and economic arenas. Even more difficult for India is to strike a balance and harmony between, social, economic and environmental needs of the country. On the policy front, India has a number of legislations covering the entire spectrum of the environmental management.

Environment related legislation is covered in depth under the Environment Protection Act, 1986, the Air (Prevention and Control of Pollution) Act, 1981, the Water Cess Act, 1977 and the Water (Prevention and Control of Pollution) Act, 1981. Whereas the legislative framework for forest management and biodiversity are broadly contained in the Biodiversity Act, 2002, the Forest Conservation Act, 1980, the Wildlife Protection Act, 1972 and the Indian Forest Act, 1927. Apart from these there are many other pieces of legislation and policies that make a valuable contribution to environmental management. These legislative frameworks recognise the need for sustainable development and have led to formulation of desired strategies to give effect to such recognition.

The biggest environmental dilemma for India is the trade-off between reducing environmental degradation and poverty reduction. The main reasons for environment degradation in the country are seen as population growth, poverty, inappropriate technology & consumption choices, unplanned urbanisation, water intensive agriculture and polluting industries that have changed he relationship between people and the ecosystem. Such environmental degradation impacts soil fertility, air quality, forest cover, quality of water, wildlife and fisheries and has an adverse impact on the people particularly the rural poor and tribal population whose livelihood is dependent on these natural resources. Having said that, poverty itself can accelerate environment degradation as long as administrative, and informal institution failure persists. However criticism for environmental degradation is limited to coal mining activities.

Coal mining does have some negative environmental impacts but in terms of cost benefit analysis it contributes much more for the states in terms of material income and employment generation. The only thing that is missing is compliance with environmental laws and monitoring of the ongoing projects.

For instance, as per Jharkhand State Council report, mining and quarrying accounts for 14.3 percent of the State Domestic Product. The industry provides both direct and indirect employment. Indirect employment is provided through ancillary activities which include overburden removal, crushing/grinding, beneficiation and upgradation of ores, sizing and washing, downstream refining, loading/unloading at mines/railway site, truck transportation, waste dump stabilization, rehabilitation, canteens, rest house management, construction of housing for mine workers, maintenance of workshops, watch and ward staff, hospitals/medical facilities, etc.

According to the US-based National Mining Association[1]:

  • Every single job at the mining site created an additional 2.6 jobs in the other sectors of the US economy. More than 250,000 people were employed in the US metals and non-metals mining sector and an additional 650,000 in the other sectors to support the country’s mining activities.
  • Revenue generated from the sector has a multiplier impact on the economic output as one dollar revenue generated from the mining sector has generated additional revenues of USD 2.35 as direct and indirect output. In 2007, US mines produced metals and non-metals worth USD 68.3 billion and this generated USD 161 billion in direct and indirect economic output.

According to the U.S. Bureau of Economic Analysis Industry multiplier data, coal mining has an employment multiplier of 4.4 whereas oil and gas extraction have a multiplier of 6.9[2]. Mining has a proven record of generating economic wealth.

The mining sector has made a substantial contribution in the development of India’s mineral rich states, which would have otherwise fallen off the development path. These include, Chhattisgarh, Jharkhand and Orissa. During the 14 years period (FY94-08), these states have witnessed a robust growth in their GDP on the back of higher activities in the mining and quarrying and manufacturing sectors[3].

  • Chhattisgarh’s overall GDP has increased by more than four times, growing at a CAGR of 13 percent. The mining and quarrying and manufacturing sector’s contribution to the state’s GDP increased by 8 percentage points to reach 36 percent. Increase in activities in these sectors helped in improving the state’s per capita GDP which grew at a CAGR of 11 percent.
  • In the case of Jharkhand, the mining and quarrying and manufacturing sector’s share reached 45 percent, which increased its overall GDP by 329 percent (over the period FY 94-08) and its per capita GDP at a CAGR of 9 percent.
  • Orissa’s GDP increased by 457 percent, growing at a CAGR of 13 percent as the combined share of both sectors which improved from a modest 16 percent to 24 percent. In addition, the state’s per capita GDP grew at an annualized rate of 12 percent.

The Indian mining industry contributes significantly to the economic development of the country and more specifically to the advancement of the less developed regions. Therefore mining cannot be singled out as target by environmentalists.

The government has given due consideration to environmental problem but it lacks institutional capacity to check compliance of laws. These failures happen due to untargeted subsidies that provide incentives for excessive use of natural resources.

The government must incorporate costs associated with depletion of natural resources so as to change the perception that these resources are free. Post project monitoring at regular intervals is also necessary to keep a check on any loss in biodiversity or environmental degradation. Also enabling Panchayati Raj institutions, local informal bodies and urban local bodies to undertake monitoring of compliance with environmental management plans will be good initiative in this direction.

Views are those of the author                     

Author can be contacted at ashishgupta@orfonline.org

[1] http://www.fedmin.com/upload/e&yreport.pdf

[2] http://www.triplepundit.com/2011/05/employment-multiplier-green-economy/

[3] http://www.fedmin.com/upload/e&yreport.pdf

Courtesy: Energy News Monitor | Volume XII; Issue 3