The Tamil Nadu governmentís decision to close the Sterlite plant in the area is an involuntary impulse. This permanent shut down has significant implications for domestic industries. There could be two perspectives to look at this situation , one from the environmental angle and other through the economic lens. What is generally understood in practicality is that both these perspectives are at the loggerheads but with the fine understanding one can find that both are in tandem as the environmental protection necessitates the economic growth in future.
First let us analyse and figure out the reasons behind this closure.
Looking into the economic aspect , The unit had a capacity of 400,000 tonnes, of which 45% was exported mainly to China and the Far East and West Asia, while the balance 55% was sold to domestic customers. A sudden permanent shutdown will lead to disruption in the supply chain of copper. Also the company catered 800 small and medium enterprises across the country. The reduction of domestic copper in the country will force the country to import copper at huge cost , India may emerge as a net importer of copper, from being a net exporter. According to Sterite Copperís CEO , the demand would be addressed by additional imports that would cost $2 billion of forex outflow.
This is also a blow to the stability that the downstream industries had with supplies from Sterlite. According to industry experts, companies in sectors such as consumer durables ( fans, air conditioners), power cables and the electrical industry will be hit, given that they are big users of copper. Also , India has three companies who manufacture copper viz Hindalco, Sterlite and Hindustan Copper with 413,806 , 403,206 and 25,949 tonnes of production in FY18 respectively. With the closure of Sterlite, supply chain will be affected severely and we will have to rely only on one supplier, which is not healthy from the business point of view.
Over and above it also hurts PM Modiís efforts to showcase India as an investment friendly country. If domestic industry cannot function how will foreign companies do ? The state government must think hard about such decisions. Shutting plants may make activists happy but the long term repercussions of such an action arenít good. Let pragmatism prevail over politics.