Government officials said that a lack of geological data and technology is blocking foreign firms from making any significant discoveries of key commodities like gold.
Gold reserves are estimated at 14,000 tonne but the country only produces three tonne of its total annual demand of 800 tonne.
It imports a fifth of global output to meet the shortfall. Under the existing rules if any entrepreneur invests money and finds gold, then he must apply again for mining, said T Subbarami Reddy, junior mines minister. He said that under the new policy any investor who finds gold will automatically get permission to begin mining.
Under the new rules approvals for most minerals must be made in about a year or be automatically referred to a tribunal. Most of the foreign firms are interested in mining of gold, diamonds, lead, zinc and copper, said RK Sharma, secretary general of the Federation of Indian Mineral Industries.
Foreign prospecting companies rarely come to India because they cannot sell the data they map and can only utilise the information if they venture into mining themselves.
Government officials said that the new policy would also allow prospecting companies to sell their information to mining companies, whose expertise lies in digging out the metal.
Rajasthan, Karnataka, Madhya Pradesh, Bihar and West Bengal are believed to have gold reserves, which are untapped because of a lack of investment.