Better capacity utilisation is needed

Given the present globally competitive environment, the mining industry must work on new financial strategies, aggressive exploration development programmes, investment-friendly policies and regulatory framework, value addition of minerals and the use of productivity enhancing techniques, says Rajesh Nath, Managing Director, VDMA India, in an interview with Sumantra Das.

How did you come to terms with the slowing economy?
India’s economic growth has slowed to its weakest pace in a decade due to problems such as wide fiscal and current account deficits and high inflation. The estimated growth in Gross Domestic Product (GDP) was 5 per cent for FY2012-13 as against the growth rates of 6.2 per cent during FY 2011-12. Local stock and bond prices have fallen lately and the rupee tumbled to a record-low against the US dollar due to a pullout by foreign funds.

The government has implemented some changes to reinvigorate the economy. Foreign multi-brand retailers were allowed to set up shop in India and foreign investment restrictions in the civil aviation and television broadcasting sectors were eased. More specifically, the government is reviewing an increase in foreign direct investment limits in several sectors.

The government also raised the limit on foreign institutional investments in government bonds from $5 billion to $30 billion, in a bid to attract overseas funds. Measures like reducing subsidies to narrow the fiscal deficit are helping improve growth prospects. This was reflected in Fitch’s decision to raise its outlook on India’s triple-B-minus debt rating to stable from negative.

In present scenario, what one must do and must not do?
The companies have to go back to basics and continue to focus on the business. The slowdown should be utilised as an opportunity to review the process in the company. This can lead to positive results. Further, new markets and diversified opportunities should be looked into. Since business is always cyclical, it is important that the companies maintain a positive outlook and work towards implementing certain changes.

However, one must not be panic. Panic is the root of many business problems because emotions overtake logic. When that happens, decisions become short-sighted and are based on short-term results. One must stay calm and evaluate the impact of the changing economy on the business over the immediate-term as well as the long-term using sound logic and realistic scenarios that might play out. Certainly, one must consider the worst case scenarios, but care should be taken not to immediately assume that they will play out.

In current situation, what is more important: capacity utilisation or profitability?
India has tremendous growth potential and has been attaining a healthy growth over the years. The companies cannot compromise on growth, even if one has to compromise a bit on profitability for a short period of time. Whatever investments are made, for the companies it is important that the return-on-investment threshold is achieved. Hence, under the present scenario better capacity utilisation, efficient usage of resources and streamlining of the processes is needed.

Almost all predictions for this fiscal are far from positive. So how do you see the growth momentum up ahead?
The Indian economy has slowed down at the moment but we expect a gradual pick-up in growth in the coming quarters. When it comes to emerging markets, it must be remembered that the average growth for emerging markets is around five times that of a developed or matured economy. Looking at about one per cent growth this year for the developed markets, the emerging markets should be growing at an average of five per cent. Though slow, India is still growing and we believe that with improvement in the global markets, the Indian economy should also take an upwards trend.

Globally, minerals and metal prices have been volatile for quite some time. How is Indian mining industry coping with this difficult scenario?
Indian exploration budget continuing to be minimal at 0.5 per cent of the global spend; the opportunity is still largely unexplored. A focused approach is the need of the hour as sustainability issues for the mining and metals industry need to be addressed. Management has to play a key role in adopting sustainable practices for their operations and integrate sustainability in all their business strategies Given the present globally competitive environment, the mining industry must work on new financial strategies, aggressive exploration development programmes, investment-friendly policies and regulatory framework, value addition of minerals and the use of productivity enhancing techniques.

What were the lessons learnt from the downturn? In this present condition, can we expect mining industry will make a strategic move?
Downturn requires streamlining and making the present process efficient and effective. However, for that bold decisions and proper implementation is required. With production of major minerals like coal being primarily being undertaken by PSUs and the social responsibilities attached to their operations, the implementation process would be long and tedious and hence can only be partially or frugally practiced.

Do you think the existing mining policy is sufficient for growth? What changes are required that can make industry better?
Taxation reforms in the pipeline present an opportunity to align tax policies. India has the opportunity to keep its mining policy relatively competitive amid the current environment such that the sector attracts differentially increased interest from the global investors. The mining equipment sector in India is at intermediate stage of development. The industry has the requisite equipment but lags behind in technology. This is primarily due to the fact that these technologies have to be imported. India needs to upgrade and improve the productivity and safety and this can only be accomplished with the necessary technological interventions. Indian companies can avail of these technologies by importing and/or collaborating with global leaders in the technology space. Mining infrastructure development requires long term planning, with a special focus on logistics and services. Hence, India needs to enhance and optimise logistics configuration between mines, plants, railways and ports.

The surplus metals capacity in the developed economies limits the headroom for any rise in metal prices,which has shifted the spotlight to mineral resources once again. Will India be able to grab this opportunity?
Being aware of the vast potential of the sector, the Government of India has been consistently and in a pragmatic manner opening up the previously controlled regime to usher private investment in the sector and infuse funds, technology and managerial expertise. The opening up of the Indian mining sector has, therefore, generated considerable global interest.

How far low investment in exploration and technology upgradation hampering Indian mining sector?
At present, the flow into the exploration efforts is meagre in India, which needs urgent attention. India’s share in worldwide exploration of non-ferrous minerals is just 0.5 per cent. India has a land mass of 1.82 million sq km, of which 97 per cent is yet to be explored. Historically, multiple issues have constrained the capture of the full potential of the minerals wealth in the country, one of which being unattractive investment environment.

Why does the sector remain unattractive for foreign investors?
One of the reasons for the Indian mining sector to remain unattractive for the foreign investors can be multiplicity of agencies in decision making. It is leading to delays in investment.

The prospective investors need to interact and obtain clearances from 10 or more different agencies (adding up to 90 desks) compared to only four agencies and single-window facilitation in Western Australia. Consequently, the mining clearance in India takes four to seven years in an average, compared to 18 months in Western Australia.

Is tackling social issues like displacement of population, marginalisation of local communities and economic disparities in mining areas affecting the sector?
In general, mining activity creates disruption in social life, and the industry must work to alleviate such disruption, to the maximum extent feasible. Mining firms face resistance from the host community when it comes to extracting minerals from mines in their vicinity, particularly in densely populated country as India. The Government of India is taking significant steps towards regulatory concessions to host communities on matters of land acquisition, forest rights and sustainable development.