Lifting of Goa mining ban may help bridge India's CAD.

The Supreme Court order of Monday allowing resumption of mining in Goa is expected to help remove some more red ink from India’s current account.

The Court order comes with a rider that there will be an annual cap of 20 million tonnes of iron ore that can be mined from the state. Since almost the entire production from Goa is exported, this would translate to an additional Rs 6,800 crore (about $1 billion) of foreign exchange earnings from the sector. For comparison sake, India’s current account deficit (CAD) is now $4.2 billion in the third quarter of FY14, so the additional iron ore exports can make a sizable difference.

According to Goa Mineral Ore Exporters Association data, before the ban hit them, the total production of iron ore was about 45 million tonnes in FY11. The export realisation from this was Rs 17,000 crore.

While iron ore prices in the international markets have dipped by Rs 125 per tonne since then, with the rupee depreciation the exporters are confident their cushion has survived. At its peak, India was exporting about 120 million tonnes of iron ore per year. Of these, while Goa accounted for 45 million tonnes, Karnataka and Orissa made up the rest.

The dip in iron ore exports and a spurt in coal imports had hurt the balance of payments for the Indian economy. With the rise in gold imports too the current account deficit (CAD) had risen to $85 billion in FY13 or close to 5 per cent of the GDP.

With the government and the Reserve bank of India jointly clamping down on gold imports and a dip in oil imports, the CAD has improved to 2.3 per cent of the GDP in the April-December period of FY14. It was 5.2 per cent in the same period of FY13.

At this juncture the projected resumption of iron ore mining from Goa will be a useful support for the foreign trade figures.

The exporters The Indian Express spoke to were hopeful that since most of the improvements in mining practices having already been made by them in the interregnum, the Court will be willing to gradually expand the mining cap.

For now, the Supreme Court has asked the Goa government to formulate a scheme within six months for utilising the funds generated by e-auction of the iron ore.

Source : financialexpress.com