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Boom town goes bust

Source : BUSINESS_STANDARD
Last Updated: Fri, Jul 13, 2012 19:05 hrs

It had been a windfall, the likes of which he had never seen before. G Daranna Gowda used to be an operator of wheel loaders (a heavy equipment vehicle made by companies such as JCB that are used to scoop material) with KMMI Steel in Hospet, Karnataka. But with 5,000-6,000 trucks trundling down the highway outside his house, ferrying iron ore from mines in and around Bellary, Hospet and Sandur to ports, railway stations and steel plants, Gowda decided to open a small dhaba. And that’s when he hit the jackpot. His income soared from Rs 1,800 a month to Rs 2,000-2,500 a day, half of which he was able to keep as profit. Encouraged, the tea-shop owner bought a lorry for Rs 10 lakh, paying Rs 1.2 lakh and borrowing the rest from a finance company.

But the dream run ended this month two years ago when the Karnataka government banned the export of iron ore following reports of large-scale irregularities. The Supreme Court followed this up a year later by banning mining altogether. Gowda’s lorry could not find enough customers and with his tea-shop earnings shrinking, too, his truck was seized by the finance company. Gowda has shifted his children from their private, English-medium school to a Kannada-medium school and is now looking for other jobs.

Different versions of Gowda’s story are replayed many times along NH 63 between Bellary and Hospet, dotted with abandoned tyre-repair shops, dhabas and weigh bridges, and in the towns themselves. Mining has gone on in the ore-rich Bellary-Hospet-Sandur belt in northern Karnataka since the 1950s but it had been a low-key affair, with MMTC as the sole purchaser and exporter — dictating quantity and price. Then, in the 1980s, small sponge iron units came up which needed ore. This gave mine-lessors another market.

But the real game-changer was China’s voracious appetite for iron ore fuelled by its construction boom in the late ’90s. This, along with the alleged collusion of Bellary’s administration at the behest of Janardhan Reddy and his brothers, saw illegal mining grow by leaps and bounds — the Lokayukta estimates that around 30 million tonne of illicit iron ore was exported from 2006-07 to 2009-10, valued at Rs 12,228 crore. The total amount of iron ore exported from the state in this period was around 126 million tonne.

While some like the Reddy brothers are alleged to have made thousands of crores — enough to last their families for generations —others like Gowda who were at the end of that chain have had their worlds turned upside down by the boom and sudden bust.

Kenchamma, who lives in a settlement of largely Telugu labourers opposite the Papinayakanahalli railway station, and who used to earn her livelihood by loading rail wagons, is even worse off. Kenchamma cannot say how old she is, but her neighbours estimate her age to be around 60, though she could easily pass off as 70. The boom for her had meant earning Rs 60 a day loading ore on to rail wagons but she says she has now been out of work for two years. She survives on whatever her children earn from masonry work and other manual labour, she says, her eyes filling with tears.

Large-scale unemployment has been one of the most poignant consequences of the ban on iron ore mining. “Around 7,000 drivers and cleaners have lost their jobs after the ban came into effect,” says Venkat Rao, president of Bellary District Transport Owners’ Association. The number of lorries in the district have shrunk from 18,000 to 11,000, and private financiers, he adds, have seized over 5,000 lorries. Rows of trucks idling in finance companies’ parking lots is a common sight in Bellary.

Sponge iron units, which had mushroomed in the region post-2004, are also in bad shape, says Srinivasa Rao, president of Karnataka Sponge Iron Manufacturers’ Association. Of the 40 units in Bellary, only 10 are now operational, and these are running at 10-20 per cent capacity, Rao says.

And what of the mines? According to the department of mines and geology, 116 iron ore mine leases were operational in the Bellary-Hospet-Sandur belt before the ban came into effect in 2011. Deputy Commissioner Amlan Aditya Biswas says the environment impact assessment undertaken by the Indian Council of Forestry Research and Education estimated direct employment in Bellary district’s mines to be 12,000 in 2010, of which around 15 per cent were outsiders. Truckers, he says, have seen large-scale unemployment, but figures like 100,000 rendered jobless in Bellary and even the transport association’s estimate that five employees per vehicle have lost jobs are exaggerated. “My view is that you don’t buy a vehicle that can transport only iron ore. The same trucks can transport anything else, and drivers can drive other vehicles. Had Bellary’s economy been sound, it would have been able to provide alternative employment to these people,” Biswas says. There has been no social unrest of the kind many said the ban would cause. The party, he adds, was bound to get over some time.

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In April, the Supreme Court’s central empowered committee said 45 of of the 166 mining leases in the state, or Category A mines, identified to have committed no or very little illegalities, would be allowed to resume operations, subject to approval of their reclamation and rehabilitation plans. Last week, the committee approved plans for eight mining leases in A and B categories; these mines can resume operations once the Indian Bureau of Mines gives its nod.

But things will never be the same again in Bellary. With the Supreme Court imposing a cap of 25 million tonne per annum on iron ore production in Bellary district — to be distributed among all mines — operations will have to be scaled down, and manpower decreased proportionately.

JSW Steel, which has its biggest steel plant in Toranagallu between Bellary and Hospet has not let go of staff, though it has had to operate at 60-75 per cent of its 10-million-tonne capacity owing to paucity of iron ore. The lack of an assured supply of ore is a source of frustration. “At this rate, we can pull on for a month but if mining does not resume soon, there will be a giant question mark over the plant’s production,” says P K Murugan, vice-president, commercial, at JSW Steel. Currently, ore is supplied by state-owned NMDC and old stockpiles of ore, through electronic auction, as decreed by the Supreme Court.

* * * * *

Business in Bellary too received a jolt with the ban. In its heyday, stories had abounded about money flowing like water through the town, with people not grudging spending — whether a couple of extra rupees on chai and gutka or lakhs on luxury goods. Those days now seem a distant memory for G S Pruthvi, assistant general manager of Bellary Motor Sales, a dealer for Mahindra & Mahindra. Since the ban, sales have dipped by around 30 per cent, he says, though he declines to reveal actual numbers. “We are now focusing on retail customers instead of corporate, as we used to do earlier,” he says. “Earlier, people would not mind shelling out Rs 30,000-40,000 at a time on maintenance and repairs, which is where most of our [profit] margin comes from. But the same customers might now go to a local mechanic instead.”

Average daily customer spend at the lone Woodlands store in Bellary town has also come down from Rs 10,000 to Rs 3,000, says Boothesh, the store manager. But ironically, single-day sales at the store touched its highest ever last May, at Rs 8 lakh. Boothesh says this is also because there are customers coming from nearby Andhra, and from other districts of Karnataka.

The fate of businesses directly dependent on mining, though, is bad. Lokesh C, proprietor of industrial equipment supplier Sree Lakshmi Trading Company, says his annual turnover has shrunk from Rs 3 crore during the heyday of mining to less than Rs 1 crore now. “The town has gone back to what it was 10 years ago,” he says.

The demand for credit is also slipping, a sign of the impact on business sentiment. “Banks have the funds but there is not much demand for fresh credit in Bellary,” says S M Gorbal, manager of Syndicate Bank, RBI-appointed lead bank for the district. Property prices, he adds, have halved in the last two years. Yet banks have far from given up on Bellary: Gorbal says branch expansion is unaffected by the change in the town’s fortunes, with 91 of the 265 bank branches in Bellary located in the district headquarters alone.

* * * * *

If the highway from Bellary to Hospet tells the story of a bust, the road running through Sandur spells one of recovery, albeit of a different kind. There are many plots of land on either side some lying fallow or being levelled. This was farmland that had been dug up for iron ore, either by the farmers themselves or by others they had leased it to. The department of agriculture found that in Sandur taluk alone, the number of uncultivated plots (according to survey numbers) had leapt from just three in 2001-02 to 911 in 2008-09. The reasons, the department found, were all mining-related: farmers preferred to let their land be used for illegal mining or related activities such as parking tipper trucks or storing iron ore; farm hands were hard to come by, thanks to the demand for labour at the mines; and farmers’ earnings from individual mining was enough to compensate for the loss of income from farming. Biswas says the district administration had to book 75 cases of illegal mining against farmers in Sandur.

With the ban on iron ore mining, farmers are gradually returning to their original occupation full-time. By 2010-11, the number of uncultivated plots had come down from its peak to 641. And the change is evident — the fallow plots alternate with those green with jowar, sunflower and other crops. The region that saw untold, ill-begotten wealth is slowly returning to normalcy. As Khader Khan (name changed), 39, a Sandur farmer, puts it, still with a note of wonder in his voice, “It [good fortune] came all of a sudden and then left all of a sudden.”



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