With a new government led by the Bharatiya Janata Party (BJP) and new Prime Minister Narendra Modi being elected with a full majority in India, supporters’ expectations are riding high, with many clamoring for a “Modi-fication” of India’s mining sector.
A post-election research paper presented by the Barclays Equity Research team said this was “an opportunity” for the incoming government to preside over a complete “image makeover” of mining in the world’s largest democracy. Barclays said it now sees the following potential themes emerging for the Indian Materials space following the general elections:
A) The image makeover of the mining sector and mining sector growth (particularly coal) addressing several economic and social issues.
B) With the demand for materials hitting a trough, the new BJP government’s focus on accelerating urbanization and infrastructure would result in a sharp demand recovery.
The report pointed out that India’s mining sector had been witnessing negative growth rates. The sector, it stated, had struggled to exploit its resources potential due to three big factors: regulatory and administrative procedures, inadequate infrastructure facilities, and sustainability.
These challenges had limited overall investment in mining and exploration activity in India, as was evident in the very low inflow of foreign direct investment in the mining sector.
India’s spending on mineral exploration was less than 0.5 percent of global spending on exploration in 2010, well below its fair share given the scale of the country’s mineral resources potential.
India’s coal sector, too, faced a unique impasse, according to Chiraq Shah, an analyst with Barclays. While the country had 13 percent of global coal reserves, its production share was languishing at 6 percent.
To ease this, the Barclays report said, “a sense of urgency (is needed) to address logistics bottlenecks (that) could help the sector in the near term.”
The fast-tracking of some of the critical evacuation infrastructure by the new government could provide sharp volume growth through fiscal year 2016, which, in turn, should also significantly help in reducing the country’s imports.
Barclays’ experts said they forecast coal imports could accelerate by a compound annual growth rate of 9 percent over FY13-17E, leading to an unsustainable imports bill of $22 billion.
Infrastructure for the transport of coal including rail was another issue that must be high on the must-do list for the new government. The report pointed out that most mines in India also face infrastructure bottlenecks in terms of feeder lines from coal mines to freight corridors. The much discussed critical new rail infrastructure, if fast-tracked, could solve India’s coal deficit issues completely.
Sohrab Darabshaw contributes an Indian perspective on industrial metals markets to MetalMiner.