Logistics cost & infra bottlenecks blunt Indian mining industry's edge

India's logistics cost as a percentage of its GDP is 14 per cent, against 10% in America and Japan, and 11% for the European Union

Steep logistics cost and infrastructure bottlenecks are weaning away the competitiveness of Indian mining.

India's logistics cost as a percentage of its GDP is 14 per cent, against 10 per cent in America and Japan, and 11 per cent for the European Union. The cost of moving steel in India is 2.3 times that of China.

Another reason is infrastructure constraints. Railway freight traffic has more than doubled over two decades while the total route length has grown by only five per cent. Mineral-laden areas continue to grapple with a cramped rail network.

On the roads, congestion is equally pronounced for mineral movement. National Highways constitute only two per cent of the network but handle 40 per cent of road traffic.

Ports, another key component of transport infrastructure, are marked by slow evacuation of cargo, escalating transportation cost. There are cases when the turnaround time is double the time at the ports in Colombo or Singapore.

A mining industry source suggests iron ore areas get separate road networks, as in Australia or South Africa. 

"State governments can become nodal agencies to create common facilities for closed-belt conveyors from a cluster of mines to public sidings," he said. "Also, one could envisage a common government investment programme for a slurry pipeline grid, for the benefit of multiple players, not a single beneficiary."

A big tax burden is also blunting the mining sector's competitive edge. The royalty charged on iron ore is 15 per cent, the highest in the world. Australia has 6.5-7.5 per cent while Brazil has two per cent. It is 0.5-7 per cent in South Africa and 0.5-4 per cent in China.

In addition, Indian mining entities also must contribute to their District Mineral Foundation and National Mineral Exploration Trust. With royalty, this adds to 19.8 per cent of the sale price.

"The royalty regime in India does not promote beneficiation of low-grade ore, a costly proposition," the source said.