In a bid to persuade the rebels to lay down their weapons and come to the table for talks, the government has reportedly offered to suspend contracts with mining companies in central and eastern parts of the country.
'We are willing to suspend all memoranda of understanding (with mining companies) until we talk to the Communist Party of India (Maoist) and review them,' Home Minister P Chidambaram was quoted as saying by the Financial Times.
A major part of the red corridor lies in India's mineral heartland.
Naxalite activities in Chhattisgarh have been posing a threat to iron ore mining. Bastar in Chhattisgarh alone accounts for a fifth of all iron ore deposits in India.
The worst sufferer will be the National Mineral Development Corp if the Centre goes ahead with its plans to placate the Naxals and cancel the mining contracts. NMDC is the country's largest iron ore producer and exporter in the public sector.
It produces roughly 80 per cent of its 27-million-tonne annual iron ore output from Bailadila reserves in Dantewada, a Maoist stronghold.