From a negative growth in 2012-13, the mining sector has revived to register a growth of 2.3% in 2014-15, still far lower than its potential and in comparison with growth in other sectors of the economy however, there is a huge opportunity yet to be tapped which can yield good results if the focus of government policy is to facilitate investments, improve infrastructure and remove ...
From a negative growth in 2012-13, the mining sector has revived to register a growth of 2.3% in 2014-15, still far lower than its potential and in comparison with growth in other sectors of the economy
however, there is a huge opportunity yet to be tapped which can yield good results if the focus of government policy is to facilitate investments, improve infrastructure and remove bureaucratic roadblocks in the development of the mining sector
India is a country naturally endowed with rich mineral resources. It is the largest producer of mica, second largest in chromites production, third largest in coal and lignite, second largest in barites, fourth largest in iron ore, fifth largest in bauxite and crude steel and eighth largest in the world in aluminium. India accounts for 12% of the world's known and economically available thorium. India is also the world's third largest producer of coal, which is consumed mainly for power sector and provides for energy requirements of industries like cement, fertiliser, chemical and paper.
India had about 5.62 billion barrels of proven oil reserves (as of April 2010), which is the second-largest in Asia- Pacific region behind China. As of 2013, India produced 30% of its oil resource needs, mostly in the state of Rajasthan.
In spite of having the top ranking reserves of various minerals in the world, mining industry contributes only about 2.1% to the GDP of the country as per figures for 2013- 14 in Economic Survey of 2015, which has declined from 2.8% in 2010-11. Despite the large reserves of coal, India is also the world's third largest importer by some accounts mainly due to inefficiencies in the extraction process and lack of modern technology. Coal India, the world's largest coal mining company, produces 1,100 tonnes of coal per employee a year, compared with 36,700 tonnes for Peabody Energy and 12,700 tonnes for China's Shenhua Energy.
Unfortunately, India's mining sector also suffered a huge setback in recent times due to want of environment clearances and ban on mining in several states imposed by Supreme Court of India due to irregularities.
There has generally been a lack of foreign investment interest in the mining sector in India. Global miner Rio Tinto had to wait more than a decade to secure approvals to start mining iron ore in India. Others like BHP, Anglo American, etc. are focussing on more lucrative and easier to manage sectors in Africa and Australia. As a result, a huge opportunity is going amiss for India to attract investment and technology in the mining sector even as large parts of the country remain unexplored. Lack of foreign investment interest is fortunately being supplemented to some extent by huge investments by Indian multinational companies such as Vedanta group and growth in public sector undertakings in the mining sector, however, increasingly even these Indian companies have been looking at countries like Australia, Indonesia and African countries for exploration, extraction and processing of minerals to expand their businesses.
Mining in India is regulated under the Mines and Minerals (Development and Regulation) Act of 1957 (MMDRA) and Mineral Concession Rules, 1960. Minerals are owned by the respective state governments, which grant mineral concessions and collect royalty fees and dead rent under MMRDA. 'Mineral regulation and development' is listed at serial number 23 of the State list in the VIIth Schedule to the Constitution of India. However, Parliament is endowed with authority to enact legislation under serial number 54 of the Central List in the VIIth Schedule, which grants power of "regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest". Therefore, to the extent of this legislative power, States are bound by the Central legislation such as MMDRA.
MMRDA was enacted during the industrial development phase in late fifties mainly to support the mineral concession regime for metal industries in public sector. After 1991 phase of liberalisation and globalisation, a National Mineral Policy was formulated in 1993, which invited private sector participation in exploration and mining of natural resources and was aimed to introduce state-of-the-art technology in this sector. Under the current regime, foreign direct investment (FDI) up to 100% under automatic route is available for mining and exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores. 100% automatic FDI approval is also available for coal & lignite mining only for captive consumption by power projects, iron & steel and cement units and other eligible activities and for exploration and marketing of oil and natural gas.
MMRDA was amended several times since 1993 to facilitate private investment in mining and more recently after promulgating an ordinance in January 2015 to amend MMRDA, Indian Parliament passed the Mines and Minerals (Development and Regulation) Amendment Act 2015 (MMDRA Amendment) in March 2015. MMDRA Amendment now requires all mining concessions to be granted through the auction route, making it a transparent and fair process eliminating chances of discretion or bias, while reducing delays.
Before the MMDRA Amendment, mining rights were granted in a stepwise manner. Once presence of minerals was discovered in an area during reconnaissance, state governments issued prospecting licences to companies interested in exploring them further. After the company arrived at an estimate of mineable reserves, it gained the first right to mine it, for which it had to apply separately for a formal mining lease. MMDRA Amendment has collapsed these two steps into one. Now, companies do not need to get a prospecting licence first. They can directly bid for a prospecting licence-cum-mining lease.
Under the MMDRA, a mining lease was granted for a maximum of 30 years and could be renewed for a period not exceeding 20 years. MMDRA Amendment has extended the lease period for all minerals other than coal, lignite and atomic minerals, to a period of 50 years. On expiry of the lease, instead of renewal, the concessions would be put up for auction.
MMDRA Amendment has also specified that any lease granted before the commencement of MMDRA Amendment, shall be extended: (i) up to March 31, 2030 for minerals used for captive purpose (specific end-use) and up to March 31, 2020 for minerals used for other than captive purpose, or (ii) till the completion of renewal period, or (iii) for a period of 50 years from the date of grant of such lease, whichever is later. This amendment effectively extends the period of previous mining leases also up to 50 years.
Mineral concessions granted through auction are also made transferable. A holder of mining lease can transfer it to an eligible person with approval of the State Government. If no approval is conveyed within 90 days, there is a provision for deemed approval by which the transfer will be considered as approved.
MMDRA Amendment also provides for setting up of a District Mineral Foundation (DMF) to which a fixed percentage of revenue of a mine will be allocated. The rates would be set up by the respective State Governments, which would be payable by mining lease holders in addition to royalty. The funds in the DMF would be used for benefit of persons affected by mining and for rebuilding infrastructure in mining affected areas. A National Mineral Exploration Trust will also be set up to explore and promote non-coal minerals with a starting fund of '500 crore and will be funded by a 2% levy from mining license holders.
Some state governments like Odisha have severally criticised the MMDRA Amendment on the ground that it infringes on rights of state governments. Others have expressed reservations on the workability of prospecting-cummining license as no one would apply for a mining license unless reserves of minerals have been proved. Without prospecting, it would be difficult to assess mineable reserve and determine the basis for auction pricing.
There has also been some criticism regarding the cancellation of pending applications for mining grants to be replaced by auctions with a reservation created for those mines where reconnaissance permits and prospecting licenses have already been issued.
Some social activists have claimed that in most parts of India, the presence of mineral reserves has been mapped and permits and licences have been issued for their exploration and by amending the law, the government hasn't made mines available for competitive bidding, but instead saved them from it!
Indian government has also initiated memorandum of understanding (MOUs) with China and African countries like Congo and taken steps to revive other agreements such as that with South Africa signed in 1997 for cooperation in mining sector. These steps would help in exchange of information on resources, laws and policy and encourage transfer of technologies.
Despite the criticism of social activists, it is clear that MMDRA Amendment is geared towards bringing more transparency in mining allocations and government is serious in developing the mining sector by facilitating investments and technology improvements, the twin goals of its Make in India initiative.
India wants to more than double coal output to 1.5 billion tonnes by 2020 which is vital for power sector particularly concerning the stated ambition of the current government to provide "24 x 7 Power for All" by 2019. Recent auctions of 29 coal blocks yielding over ' 2 lac crore was a major achievement of Modi government. Reform measures in the infrastructure sector, FDI in railways and defence and plans to start power plants in the private sector with all approvals in place are expected to address infrastructure bottlenecks and boost growth prospects for the mining sector in the medium to long term. The proposed investment in railways to the tune of '8.56 lakh crore between 2015 and 2019, announced in the Railway Budget 2015-16, would boost demand for steel, which would create a buoyant effect on mining of iron ore and coal.
India Ratings and Research has recently revised the outlook on non-ferrous metals and mining sector to 'stable' for FY16 from 'stable to negative'. It has also maintained a stable rating outlook on sector companies for FY16.
However, the outlook is sensitive to economic activity in China, which accounts for 40%-50% of the global consumption of aluminium, copper and zinc metals and hence has a strong influence on metal prices. Chinese economy has slowed down considerably and any further negative impact in China could cause a sustained longterm correction in metal prices affecting India's chances of revival in mining sector.
Whilst reduction in oil prices from over USD 120 per barrel levels to around USD 60 per barrel has given a fillip to Indian economy with reduction in its import bill and narrowing the gap in its current account deficit, unfortunately, it has also caused a downside to the oil and gas and other related mining industries. Hopefully, the compensation of energy price reduction should be positive for mining sectors other than oil and gas as transportation and energy are major cost drivers for this industry.
India produces as many as 87 minerals including 4 fuel, 10 metallic, 47 non-metallic, 3 atomic and 23 minor minerals. In the long run, India's mineral deposits can determine in considerable measure her place in the world. Industrial power in the modern world is based on the trinity of coal, iron and oil.
From a negative growth in 2012-13, the mining sector has revived to register a growth of 2.3% in 2014-15, still far lower than its potential and in comparison with growth in other sectors of the economy, however, there is a huge opportunity yet to be tapped which can yield good results if the focus of government policy is to facilitate investments, improve infrastructure and remove bureaucratic roadblocks in the development of mining sector.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.