Emerging Markets and linkages with Sustainability, Security of Natural
Resource – the case of Copper
Executive summary
The rapid economic growth of India could entail an expansion of the manufacturing,
construction and communication sectors, which are dependent on the mineral resources.
The growth pattern of India shows an increasing contribution of the secondary and
tertiary sectors (in comparison to the primary sector) to the overall economic growth
process. . Many growing segments of the secondary sector (like manufacturing) are
natural resource intensive and interlinked with the primary (like mining sectors dealing
with mineral resources like iron ore, copper ore) and tertiary sector (like infrastructure
services). This clearly highlights that Indian economic growth depends on the
interlinkages between the growth pattern of different sectors. However this growth could
create pressure on the primary mineral resources (like copper, iron) by inducing a higher
extraction demand. This in turn could have an impact on resource security. The resource
security could be impacted by various factors like the sectoral demand for the goods, the
level of imports that are used to meet the sectoral demand for the particular resource
intensive goods. A holistic resource security model has to explore a broader
macroeconomic framework emphasizing on the sectoral demand (consumption) and
supply (production) linkages. For illustration, in case of copper, the level of copper
extraction is linked to the demand for copper in the secondary (manufacturing,
construction) and tertiary sector (communication service, more specifically telecom
service). Moreover a large part of copper ore is also imported to meet the domestic
demand. Copper is also refined and re-exported from India to various countries. Copper
Alloy is formed using copper and exported to various countries.
Copper Scrap is
imported to India from various countries like Sri Lanka and after refinement; India reexports them to countries like U.K. Thus the level of reserves of a mineral resource like
copper depends on the level of demand and supply (production and consumption, export
and import) of copper and copper derived products. In order to assess the linkages
between the market demand and supply of natural resource intensive products and its
impact on resource security, a general equilibrium framework would be required. So in
this study a computable general equilibrium model would be constructed establishing the
linkages between the market equilibrium conditions and its implications on resource
security. The proposed Computable General Equilibrium (CGE) model framework would
be constructed to understand the demand and supply scenario of different products
including products using mineral resources like copper. The model aims to find out the
equilibrium values where the demand, supply (both world and domestic) in various
products including mineral resource intensive products match. The modeling would
imbibe the production and consumption scenario of all the sector wise products. The
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Executive summary
equilibrium condition would give the values of products, factor prices, product prices at
which the demand and supply for the sector wise products match. Then, these values
would be linked with the level of R/P ratio of copper.
To carry out a sensitivity analysis, shocks like changes in import, export duties,
production taxes, changes in operational costs, world prices would be introduced in the
model. The impact of these policy shocks on the exports, imports, production, and
consumption of resource intensive goods would be analyzed. These would also highlight
how such policy shocks could bring a change in the level of production of copper due to a
change in the demand and supply of various products across the sectors. Another shock,
which would be brought in the model, is the possibility of technology shocks reducing the
usages of copper. This would impact the production in the manufacturing sector as well
as the existing level of exports and imports. These shocks would further be linked to find
out the possible impact (of these shocks) on the copper production and hence on the R/P
ratio of copper (which is the indicator of resource security in this case). Thus a linkage
between the resource security (in terms of R/P ratio) and overall macro economy would
be established.
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