NEW DELHI/MUMBAI (Reuters) - The Supreme Court has kept a ban on bauxite mining in hills in Odisha considered sacred by residents, whose opinion it has ordered to be sought on whether digging would disrupt the environment or their livelihoods.
The Supreme Court also allowed just nine more iron ore mines to restart in Karnataka, in another decision reflecting the competition between the claims of environmental and social rights groups and the need for resources to power Asia's third-largest economy.
The approvals will help domestic steel mills desperate for raw material, but there will still be no exports of iron ore, as the state government has not issued transport permits.
The court stripped about 49 mines of their leases because they had been mining illegally. Taken together, the mines had produced about a third of Karnataka's iron ore.
The Odisha mining project was planned to supply up to 150 million tonnes of bauxite to Vedanta Aluminium, a unit of London-listed Vedanta Resources (VED.L) and India's largest producer of the metal, for a 1-million-tonne a year plant shut since December for lack of the raw material.
The project has drawn the anger of rights groups and highlights the difficult task Prime Minister Manmohan Singh's government faces in balancing economic development with the need to cushion hundreds of millions of poor from the fallout.
Now, a village body, with help from the state's high court, will have to decide within three months if it wants mining to go ahead. India's environment and forests ministry, which has opposed the project, will then make the final decision.
"The people have been given the power," said Prafulla Samantara, one of the campaigners against the project.
Vedanta declined to comment on the court verdict.
Lack of access to exclusive supplies of the raw material meant the firm would grapple with costs, one analyst said.
"Cost pressure will definitely continue for Sterlite in its aluminium segment as it doesn't have its own captive bauxite," said Soumyajyoti Basu, an analyst with rating agency ICRA, referring to Vedanta's India unit.
India has the world's fifth-largest bauxite reserve of about 593 million tonnes, with the majority of that in Odisha.
The Vedanta bauxite project is one of several big-ticket investment plans enmeshed in environmental and other concerns.
These range from a $12-billion steel plant planned by South Korea's POSCO (005490.KS) to a plan by Sterlite Industries Ltd STRL.NS to double capacity at India's largest copper plant, itself now shut over emissions complaints.
India used to be the world's third-biggest exporter of iron ore, shipping about half of its annual output of around 200 million tonnes, mostly to China.
But a government clampdown aimed at curbing illegal mining in 2010, and steps to retain output at home, slashed exports to just over 30 million tonnes last year.
In Karnataka, Thursday's decision adds to the 18 mines that the top court had already allowed to resume operations and includes one mine operated by Vedanta-controlled Sesa Goa SESA.NS. They have all had to come up with detailed plans to meet environmental and security conditions.
Karnataka was the country's second-biggest producer of the ore before the ban, at about 45 million to 50 million tonnes.
Basant Poddar, vice-president of the Federation of Indian Mineral Industries, welcomed the Supreme Court move, saying it would "weed out all the bad miners".
He expected production of 10 million to 15 million tonnes in the current year, including 1 million tonne per month from state miner NMDC Ltd (NMDC.NS). Poddar forecast a range of 15 million to 25 million tonnes for next year.
"We believe it could take at least six months for meaningful production to commence from Karnataka mines," said Bhavesh Chauhan, a senior research analyst with Angel Broking Ltd.
JSW Steel (JSTL.NS), which uses iron ore from Karnataka in its mills, welcomed the move, saying it would have a positive impact on the steel sector and the Indian economy.
Additional reporting by Jatindra Dash in BHUBANESHWAR; Writing by Jo Winterbottom; Editing by Clarence Fernandez