FY23 numbers encouraging, but mining & quarrying lags

Sector contracted in FY23, compared with FY19; marginally grew over pre-covid period

The economy has recovered handsomely from the pre-covid periods, but mining and quarrying is taking time to pick up even after four years.

The gross value added (GVA) in the segment rose 4.6 per cent in 2022-23 year-on-year (YOY), giving an impression of reasonable growth. However, it contracted 0.6 per cent in 2022-23 over the value in 2018-19.

But since mining and quarrying GVA fell in the pre-covid 2019-20 YOY, there was a growth of 2.4 per cent in 2022-23 over 2019-20.

The first three quarters of 2022-23 saw a decline in mining and quarrying GVA over 2018-19, with the second quarter declining as high as 5.4 per cent. The first and second quarters saw a fall of 1.4 per cent and 1.6 per cent, respectively.

The second quarter of 2022-23 saw a marginal decline of 0.1 per cent YOY and a bit higher contraction of 0.4 per cent over 2019-20. The remaining quarters saw a growth YOY as well as over 2019-20.

On the other hand, the gross domestic product (GDP) has grown in double digits in 2022-23 over the pre-covid periods. While it grew 7.2 per cent in 2022-23 YOY, the expansion was 10.12 per cent over 2019-20 and 14.4 per cent over 2018-19.

Bank of Baroda chief economist Madan Sabnavis said the mining sector includes coal, crude, natural gas and metals like copper and iron ore, and as such the uneven growth can be attributed to the nature of some of these products such as crude oil where higher prices lead to higher production while benign prices cause companies to cut back on output.

“Also there are fewer fields explored, which restricts growth. Coal is probably the only mineral that has seen good growth, though here too there have been challenges at times due to strikes, rains as well as logistics issues like transportation. At times we import more coal given the quality differences and hence output growth tends to be volatile,” he said.

It should be noted that GVA represents value addition and, as such, companies’ margins become important. Otherwise, mining output in physical volume grew 5.8 per cent YOY in 202223, 9.4 per cent in 2022-23 over 2019-20, and 11.1 per cent over 2018-19 in the index of industrial production.

The fall in GVA of mining and quarrying could be the result of price pressures due to easing commodity rates on global slowdown. For instance, prominent miner Anil Agarwal-led Vedanta reported a 38.8 per cent fall in its consolidated net profit at Rs 14,503 crore for 2022-23 YOY.

Similarly, NMDC reported over 40 per cent decline in its consolidated net profit at Rs 5,601.5 crore during 2022-23 on a yearly basis.

The fall in GVA of mining and quarrying could also be the result of high deflator as nominal growth in mining and quarrying was over 35 per cent due to high prices in the initial months of FY23.

“Nominal growth in mining in FY23 is 35.9. The low real growth could be related to deflator,” ICRA Chief Economist Aditi Nayar said.

She said coal output was significantly higher in FY23 versus FY19, natural gas was slightly higher and crude output was lagging.