India’s mining sector today stands at an inflexion point, and the time is ripe to realise its full potential that will not only boost the overall economic growth, but also generate huge employment opportunities in the downstream sectors. Development of natural resources is vital for overall socio-economic development of the country. The import of natural resources makes up for $200 billion, or over 50%, of India’s total import bill of $400 billion. With greater development of India’s natural resources sector, import dependency can be reduced by more than 50%, resulting in the savings of ~$100 billion that will help create more than 20 million jobs, alleviate poverty and save precious foreign exchange. Only 10% of the area with mining potential has been explored in India, against 95% in Australia. A vibrant mining sector will create an entire eco-system of SMEs. The contribution of India’s mining sector to its GDP is just 2%, while it could contribute as much as 10%. Given India has one of the best geologies in the world, it must increase our production on a massive scale, maybe up to five times from the current production. This requires a simple and transparent policy, one that peels off layers from the current stack of approvals needed, to attract firms to invest, explore and produce. Currently, despite 100% FDI being allowed under the automatic route, inflows into the sector are not encouraging and account for less than 0.5% of the total inflows to the country. We have to make our policies more attractive in a transparent manner, mindful of sustainable practices for environmental protection and conservation.
The present government has already taken numerous steps to cut down the red tape and create an investor-friendly environment. The government unveiled one of its boldest reforms last month when it approved commercial coal mining for both domestic and global players. If implemented well, it will not only attract global mining majors but also usher in innovative production methods and highest safety standards. The size of coal blocks offered needs to be at least 15-30 million tonnes to make commercial mining feasible. Given that India has abundant coal reserves, of 300 billion tonnes, there is also room for exports. Post the government’s decision to open up the mining sector for private players, several reports called it the “end of Coal India’s monopoly.” The move, however, has more to do with complementing the efforts of the public sector enterprise in stepping up output in a substantial manner.
While concerns over environmental issues must be addressed with utmost priority, those demanding complete closure of mining activities is, unfortunately, not talking in the interest of the nation. Merely shutting down an economic activity is never a viable solution. Further, the amendments to the MMDR Act and the Mineral Auction Rules, and the progress made on a new National Mineral Policy have been steps towards the development of mining in India. The MMDR Act, though, has a major lacuna in its current form, wherein mines can be auctioned by state governments only after exploration. Exploration activities require huge investments; thus, private sector participation is a must and this can be achieved through the auction of mines for both exploration and mining. Given the repository of data, auctioning the mines before exploration will give a boost to the sector.
The government’s intention should be to maximize production in the most sustainable manner. In case mineral reserve discovery goes beyond the existing mining lease area, the lease should be extended automatically to encourage further investments. Currently, taxes and royalty on mining in India are one of the highest in the world; they should be brought down to encourage investments. While the government takes concrete steps to encourage private investment in the mining and other sectors, it must also ensure the protection of domestic industry from dumping via imports. This is critical as investments running into billions of dollars are made to establish infrastructure and commence production. It is ironical, for instance, that even as Indian aluminum industry has invested over $20 billion to build 4.5 million tonnes capacity and generate jobs in India, the country is importing over 50% scrap and primary aluminum. Other countries, like the US, are imposing an import duty of 10% to support their domestic players. It is high time India also imposed a 10%-import-duty on both scrap and primary aluminum to support the domestic industry.
Even as prospects for mining look promising in India, Goa’s iron ore mining firms received a jolt in February—when they were directed to halt operations from March 16. Mining companies that have operated in Goa for seven decades and invested billions of dollars were asked to shut operations. According to the Goa Mineral Ore Exporters’ Association (GMOEA), the mining sector contributes 11-12% to Goa’s economy, and the ban has caused huge losses and put the livelihoods of over 3 lakh people at stake. In the last 10 years, iron ore mining has added `30,000 crores to the exchequer. The miners have heavily invested in developing infrastructure, like roads, hospitals, schools, etc, for social and community development.
Instead of a ban, a realistic solution would have been to allow mining firms to continue their operations even as they worked towards meeting the socially desirable goals. Simultaneously, the government could have asked competent authorities to conduct environmental impact studies of existing mines and chalked out a plan for course correction. Auctioning of mines is the only practical solution for new mines. Nowhere in the world have existing mines been handed over to others or auctioned, unless miners have flouted environmental norms, indulged in illegal mining, or defaulted on payments. It is impractical to auction the mines after the license has expired, as 70-80% of the infrastructure, the land, and the equipment belongs to the existing owners and cannot be auctioned. Nowhere in the world mines are taken back after the expiry of mining lease. Normally, it is automatically renewed by the government subject to change in the rates of royalty, taxes and other environmental conditions. Continuation of mining is in the interest of everyone. The ban will send wrong signal for future investments. Already, C-category mines and other defaulting companies have been shut down.
The GMOEA has already appealed to the government to let mining operations continue in the state till the modalities of an auction are decided. I am confident that both the state government and the Centre will appeal for revoking the ban and work to find a viable solution. Safeguarding the environment is sacrosanct, but a predictable and stable investment climate is also needed to attract copious flows of investments, including FDI. Striking a right balance is an absolute must if India has to realize its tremendous growth potential in the mining sector, and raise the sector’s contribution to GDP to 10%, from the current 2%.
Source: financialexpress.com