The Indian mining sector is in doldrums on account of several policies as well as administrative and legal issues. These include mining bans in various states through supreme court orders, a low level of exploration activity, increasing imports, high taxation rates, heavy land acquisition costs, low rail evacuation capacity and expiry of 288 captive mines in 2020.
Historically, India’s prospective geology is largely similar to that of Western Australia, South Africa and South America, as these were part of Gondwana Basin having geological pedigree for high quality deposit of iron ore, bauxite, coal, diamonds and heavy mineral sands. However, where South Africa and Australia have been extensively exploring and utilising their mineral wealth with the sector contributing around 8 percent to GDP; India is yet to exploit its mineral potential contributing only 1.4 percent to GDP. India’s geological resource base can sustain much higher levels of mineral development.
Supreme court judgments have impacted the local economy of the states in particular and the mining sector in general. For instance, the mining ban in Goa pronounced on February 7, 2018 on account of illegal mining has led to the loss of Rs 1,000 crore which includes royalty, district mineral foundation trust (DMFT), national mineral exploration trust (NMET) and GST to the state and central governments. It has also resulted in loss of direct and indirect employment in the range 1.5 to 2 lakh. The apex court’s order dated August 2, 2017 of levying 100 percent penalty on mines in Odisha owing to environmental violations has forced several miners to close mines leading to 30 percent increase in the prices of iron-ore and loss of 30,000 jobs. Further, the consistent increase in the imports of minerals and metals from other countries despite having sufficient domestic resources and reserves has become one of the major reasons for India’s increasing trade deficit. For 2017-18, the year-on-year growth in import value of minerals and metals is 31 percent, as the imports increased from Rs 6.5 lakh crore to Rs 8.5 lakh crore.
Further, according to the mining survey conducted by Fraser Institute in 2016, India ranks 97 out of 104 countries in the Investment Attractiveness Index in mining, indicating the inability to attract global investors to ‘Mine in India’. All these factors have put spotlight on the Indian mining sector – something that has been long overdue.
Exploration – unlocking the potential
India’s total land area is 3.2 million sq km, of which the identified Obvious Geological Potential (OGP) area for minerals is 0.57 million sq km, amounting to 18 percent of the total land area. Till now, most of the exploration in the country has been near the surface (50–100 m) with little or no information on deep-seated or concealed or rare earth minerals. According to the ministry of mines, in case of surfacial minerals, 100 percent of the OGP area has been mapped while for deep-seated minerals only 22 percent has been mapped up to March 2018. Mineral rich countries with similar geology such as Australia have almost 95 percent area fully mapped. For attracting private and foreign investors to ‘Mine in India’, it is essential to complete all the surveys – geophysical, geochemical, aero geophysical, marine – and place the basic data in the public domain. Also, introduce the concept of robust and transparent public exploration reporting mechanism complaint with the JORC code or equivalent in the statute.
The Mines and Minerals (Development And Regulation) (Amendment) Act, 2015 has ushered in a regime of transparent and non-discretionary grant of mineral concessions. However, it has resulted in nationalisation of exploration regime. Traditionally, most of the mining countries have adopted the ‘first come first served’ principle to grant exploration rights and have provisions for automatic transfer from prospecting to mining lease. It is desirable to introduce reconnaissance cum prospecting cum mining licence on the ‘first come first served’ basis through a transparent online system for deep-seated/concealed/rare earth minerals. Surfacial/bulk/stratified minerals areas for exploration may be allocated on exploration cum mining rights through auction process. This will boost private and foreign participation in exploration.
In addition, India’s exploration expenditure is insignificant when compared with other mineral resource rich countries such as Canada and Australia which account for 14 and 13 percent of the global mining exploration spend respectively while India’s share is a meagre two percent. For each square km of a potential mining lease, Australia spends $5,580 while Canada incurs $5,310. By contrast, India spends only $9 per square km in spite of the vast mineral resources. Another issue that requires attention is the under-utilisation of funds collected under National Mineral Exploration Trust (NMET). Up to March 2018, Rs 1,184 crore have been collected under NMET, however only Rs 79.95 crore have been spent; indicating poor utilisation of funds.
Ease of doing mining
Under the auction regime introduced by the MMDR Act, 2015, only 43 mineral blocks have been auctioned till June 2018 with estimated value of about Rs 2 lakh crore, which will give revenues to the tune of Rs 1.55 lakh crore to states over the lease period of mines. Of these 43 mineral blocks, two have been executed and only one is operational indicating gaps in the policy and on-ground implementation. One of the major reasons for delay in making a mine operational is the time consuming process of getting environmental, forest and other clearances. At present it requires three to five years for operationalisation of a mineral block which includes gram sabha consent (365 days), environment clearances (358 days), forest clearances (440 days), and land owners consent (365 days).
To facilitate Ease of Doing Mining, the ministry of mines has recently launched Mobile app TAMRA (Transparency, Auction Monitoring and Resource Augmentation) across 12 mineral rich states to track the status of the statutory clearances associated with the mining blocks. It has also constituted an inter-ministerial group – Post Auction Mining and Approvals Facilitator (PAMCAF) – to expedite the various clearances/approvals required after the allotment of mineral blocks through e-auction. It remains to be seen if PAMCAF will actually accelerate mineral blocks to reach the operationalisation stage as early as possible. Though the above technological and administrative measures are commendable, there is an urgent need to put in place a system for single window and time-bound environment and forest clearances to expedite the process of mining after auction. Also, the ministry of mines should ensure timely bidding of 288 non-captive mines expiring in 2020 to avoid any disruption in the future supply of minerals.
Another issue which requires immediate attention is rationalisation of taxation. While the global average taxation applicable for mining is 40 percent of the gross profit, India is constantly adding to the taxation burden for mining industry with royalty, District Mineral Foundation Trust, National Mineral Exploration Trust and a host of other statutory levies implemented by the states. Adding to this are the one-time regulatory costs related to environment clearances and forest clearances etc., taking the total taxation to around 65 percent of gross profit. Therefore, it is necessary to define an ideal tax system for the industry to make it more lucrative especially for the foreign investors. In addition, it is also essential to increase evacuation capacity by rails as it will increase mineral availability and cost effectiveness.
Time for a boost
The Indian mining sector will play a crucial role in accomplishing the government’s visionary initiatives like Make in India, Smart Cities, indigenous space programmes, and promotion of domestic defence manufacturing sectors. The sector alone has the potential to churn out 6 million additional jobs by 2025 and can contribute an additional $125 billion to India’s output and $47 billion to India’s GDP by 2025 [Putting India on the growth path: Unlocking the Mining Potential, 2014, McKinsey & Company]. However, it is possible only by bringing policy and administrative reforms.
While state governments affected by supreme court orders are battling on their own to get mining bans removed, the ministry of mines is on the verge of finalising the Draft National Mineral Policy, 2018 to usher in the much awaited reforms in the sector. It is expected that the National Mineral Policy, 2018 will embrace the two key aspects: simplification of the process of obtaining approvals from various authorities in a transparent and time bound manner and introduction of business models which encourage private and foreign investments in the Indian mining sector. It is time indeed to launch a mission – ‘Explore in India’, like “Make in India” – to boost the mining sector. n
Vikram Singh Gaur is Joint Secretary, Minerals Division, NITI Aayog and Dr Urvashi Bali is working as a Young Professional at NITI Aayog.
(The article appears in December 31, 2018 edition)