Both state and central government exchequers in India are expected to get affected as collections against statutory levies and taxes are lower due to lower volume of mineral production amid the Covid-19 crisis, professional services firm KPMG said on May 22.
This is due to lower mineral offtake on account of lack of demand from end-use sectors and also non-availability of labour. Besides, the government's plan to auction new coal and mineral blocks is likely to get delayed.
In addition, mine developer operators and mineral operators are expected to face significant challenges due to delayed payments and unavailability of labour.
"The companies are likely to re-evaluate their operating plans during this time and accordingly re-adjust their future operations. Covid-19 is likely to delay operationalization of recently auctioned iron ore mines," said KPMG in a thought paper.
Moreover, weak demand from key end-use segments like power, steel and cement besides distressed condition of company financials may dampen the response in the proposed auction of coal and mineral blocks.
"The overall losses incurred by all the state governments combined is estimated to be Rs 4,500 crore to 5,000 crore. And the overall loss that the central government will be facing in FY21 is estimated to be Rs 1,800 crore to 2,000 crore." In the manufacturing sector, said KPMG, industrial growth is expected come back to normalcy only in the second half (Q3 Q4) of FY2020-21 if Covid-19 comes under control by then.
In the construction sector, there is a lack of automation and the resultant dependence on manual labourers. The monsoon is expected to affect the return to normalcy in Q2 of FY21.
The impact of Covid-19 has caused a decline in expenditure post the GST and RERA norms countered by government spending under PMAY. Financial implications of Covid-19 likely to stun the PMAY spending in FY21, which will further reduce house affordability.
Despite the measures, the offtake of coal has slipped on demand woes. Overall coal offtake witnessed a significant drop in March and experienced negative growth of 16%.
Post Covid-19, the mining contractor market is expected to fall by 20 to 25% in FY21, said KPMG.
On the other hand, the sustained weakness in construction activity is likely to hit the demand for minor minerals in the Q1 and Q2 of FY2020-21, given the close linkage between them.
Covid-19 led disruption to the global trade as well as subdued global markets are also likely to impact the demand and production of minor minerals.
The demand disruption of minor minerals is likely to have a profound impact on the employment and well-being of the local communities, said KPMG.
(Writing by Becky Du Editing by Tammy Yang)
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