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December 11, 2017

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REGULATION OF MINING IN INDIA: A PATHWAY TO ACHHE DIN!!


- Dr. Manoj Kumar, Founder [ Hammurabi & Solomon Partners ]
- Agniva Ghosh, Associate [ Hammurabi & Solomon Partners ]

Dr. Manoj Kumar & Agniva Ghosh

Policy & regulation of mining should reflect commercial responses to market signals and address the need for recognizing mining as an industry to enable focused and free growth of the natural resources sector in India

The development of civilizations from the dark ages till modern days has always been indicated in terms of the metals and minerals perspective. Since times known as the ‘Bronze Age’ to what came to be known as the ‘Iron Age’, metals & minerals have had a great impact on human civilization. The advent of iron after the Bronze Age brought with it greater capabilities to humankind in strengthening various aspects of human civilization, from cultivation to hunting to exposure to machinery.

The Iron Pillar at Qutab Minar in India stands tallest among civilizations who perfected the Iron Age. The technological advancement in iron in India is apparent from the rust and damagefree pillar of iron made in India centuries ago.

Following the Iron Age, the modern era of industrialization and development started with the use of steel which we have seen as the ‘Steel Age’. In India, the TATA Iron and Steel Plant marked the process of industrialization, signifying a march towards Modern India.

A robust minerals and metals economy is the bridge to meet India’s development goals for 2025 and beyond. The Mineral Law & Policy regime is therefore the most crucial piece in the reforms agenda

India is ranked as having the 3rd largest mineral reserves in the world. Foreign Direct Investments (FDIs) in Indian mining, exploration of metal and non-metal ores including diamond, gold, silver, permitted precious ores and related sectors including manufacturing of equipments etc. are permitted up to 100%, subject to the Mines and Minerals (Development & Regulation) Act, 1957. However, despite 100 percent FDI being permitted in the mining sector, mining accounts for only 0.7 percent FDI inflow in 2000-17.

India’s geological setup is similar in many ways to that of natural resource-rich countries like Canada, Australia, Brazil, South Africa, Chile and Mexico etc.

Apart from having the potential of generating capital employment of about INR 1.21 Trillion, mining alone can drive Foreign Direct Investment (FDI) up by INR 500 Billion. In addition to saving nearly $58 Billion in Foreign Exchange spend on imports of minerals including iron ore, coking coal and thermal coal by 2025, mining has the potential to generate an additional 6 million jobs over the next decade, thus potentially resulting in the acceleration of job creation by over 10%, which is expected to move a large section from poverty line to the path of empowerment.

The Smart City initiative covering creation/transformation of 100 smart cities is presently in the implementation phase. The major part of the estimated initial budget of approximately INR 1.9 Trillion for 90 smart cities is expected to be incurred on steel & metals requirements. The smart cities which will be equipped with world-class infrastructure, have pushed India’s need to up its average annual steel output by 9 percent between 2017 and 2021. India’s per person steel consumption needs to move up much closer to China’s 493 kg per person from India’s 63 kg per person, as per 2016 figures.

In addition to impact on the increase in demand for steel, potential upside in the demand for other metals and minerals has led to many start-ups mushrooming in the mining space ranging from technical assistance service providers to technology consultancies in addition to downstream suppliers to mining equipments and mining equipment manufacturers. This trend indicates the huge potential being seen by all stakeholders in the mining space on minerals such as coal, iron ore and bauxite etc. owing to India’s thrust on power production, infrastructure development and indigenous manufacturing. Sector Skill Councils are also working overtime to train 500 million workers by 2022 in order to meet the demand and supply gaps of skilled workforce in the mining space.

This explains why mining has been the center of focus of the “Make in India” initiative of the Government of India. The regime for grant of Mineral concessions (Mining Lease & Prospecting Licence cum Mining Lease) through auctions for companies interested in mining or for the raw material for their downstream industry was an attempt to simplify the procedures in the mining space. However, has the simplification resulted in ease to do the business of mining in India? Not really, if the miniscule FDI in mining or the slow pace of growth of the mining sector are taken as relevant indicators so far. As per published data, export of ores and minerals increased by 27% over the previous year during April-October 2016-17, whereas the export of base metals declined by 6.25% during the same period. Import of ores and minerals stood at 10.6 million during April-October 2016-17, which was lower by 18% over the same period in the previous year.

Even in the base metal segment, the imports during April-October 2016-17 stood at 12.4 million dollars which was lower by about 17% over the same period in the previous year. Mining being an indispensable sector of the Indian Economy and the cornerstone of the Economic Development outlook of India. Therefore, to meet the increased demand in requirements of metals & minerals towards the development vision of India towards Vision 2025 and beyond, there is a need to rework the policy framework and ecosystem in the mining sector in India. A recent draft minerals policy circulated by the Government of India seeking to enhance ease to do business of mining in India is an opportunity to achieve a lot in this direction.

While the Mineral Policy 2008, presently in force, seeks to encourage private investment in exploration and mining, the gap between mineral wealth versus optimum utilization still remains to be filled to plug our bleeding foreign exchange reserves, apart from other hardships which are impediments to the economic development of India as a result of dependence on imports for meeting India’s mineral needs. Despite improvement in the policy environment in the past, the share of mining in India’s GDP has barely increased since 2015 (about 2.2 percent of GDP compared to 8.1 percent in South Africa and 7.7 percent in Russia).

An increase in the production of iron ore from 192 MT to over 500 MT in the next decade could up the share of mining in GDP. This will not only meet requirement of raw material input as per the National Steel Policy but also contribute to current policies such as the Pradhan Mantri Make in India Yojana, Pradhan Mantri Awas Yojna (Affordable Housing for All by 2022) and Pradhan Mantri Ujjwala Yojana (LPG for BPL households). Likewise, the increase in domestic mineral production would contribute to domestic procurement of many mineral resources required for mobile communication and renewable energy industries. India has the third largest rare earth mineral concentrates (after China and USA) and the third largest deposits of chromium (after South Africa and Kazakhstan) which are critical to both the mobile communications and the renewable energy industries.

required for mobile communication and renewable energy industries. India has the third largest rare earth mineral concentrates (after China and USA) and the third largest deposits of chromium (after South Africa and Kazakhstan) which are critical to both the mobile communications and the renewable energy industries.

1. Mines & Minerals (Development and Regulation) (MMDR) Act, 1957 along with its amendments;

2. Mineral Concession Rules (MCR), 2016;

3. Mineral Conservation & Development Rules (MCDR), 2017;

4. Minor Mineral Concession Rules of various States;

5. Offshore Areas Mineral (Development & Regulation) Act, 2002;

6. Offshore Areas Mineral Concession Rules, 2006;

7. The Mineral (Auction) Rules, 2015;

8. The Mineral (Evidence of Mineral Contents) Rules, 2015;

9. Mineral (Non-Exclusive Reconnaissance Permit) Rules, 2015;

10. The Mineral Conservation and Development Rules, 2017;

11. Forest (Conservation) Act and Rules, 1980;

12. Cess and other Taxes on Minerals (Validation) Act, 1992;

13. Mines and Minerals (contribution to District Mineral Foundation) Rules, 2015;

14. Conservation rules for specific minerals like – marble, granite etc.;

15. Orders of Various Hon’ble Courts;

16. Applicable National Mineral Policy.

It is necessary to align the roadmap of the mineral sector with the future economic outlook of the Indian Economy by creating the right policy environment that (a) sets out a clear mining roadmap; (b) provides for a single window clearance; (c) resolves environmental issues efficiently; (d) sets out clear guidelines for mineral funds and (e) provides a simple mechanism for settling differences between Central and State mining regulations.

Similarly, the much-needed reform in the exploration and mining rights on the lines of hydrocarbon auction process (Open Acreage Licensing Policy – OALP policy) is necessary to be implemented apart from Single Stage Auction of Mineral Block (exploration + mining) where the investor could reserve the right to choose the block instead of the state government. Additionally, it is necessary to address concerns of investors such as regulatory instability, judicial barriers to trade, restrictions in size of lease holds for mining, and high taxation levels that reduce the competitiveness of the Indian mining sector.

Policy & regulation of mining should reflect commercial responses to market signals and to address the need for recognizing mining as an industry to enable focused and free growth of the natural resources sector in India. Moving beyond captive mining as the guiding line, it is therefore necessary to provide the right ecosystem for profitable mining to ensure value creation.

As India today strives for “achhe din”, the era of prosperity and well-being of all Indians can be achieved with a robust natural resources sector in India. This again may well be called ‘the golden period’, yet again indicated in terms of metals and minerals perspective.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.

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