FM Nirmala Sitharaman’s big reforms push in mining, but no action on high levies

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Published: May 17, 2020 12:30 AM

With 500 mining blocks to be auctioned – no timeline has been given, though – along with a Rs 50,000 crore investment to ramp up critical infrastructure, and significant improvement in the process of getting mining licenses, the government hopes to attract large investment in the sector.

Even without including oil, mineral imports add up to around 30% of India’s overall imports, making it clear just how important it is to get the mineral policy right.Even without including oil, mineral imports add up to around 30% of India’s overall imports, making it clear just how important it is to get the mineral policy right.

With 500 mining blocks to be auctioned – no timeline has been given, though – along with a Rs 50,000 crore investment to ramp up critical infrastructure, and significant improvement in the process of getting mining licenses, the government hopes to attract large investment in the sector. Even without including oil, mineral imports add up to around 30% of India’s overall imports, making it clear just how important it is to get the mineral policy right.

Little has been done, however, about Indian levies that, on average, are around 40-45% (without including the corporate tax) compared to 5-14% globally.

Finance minister Nirmala Sitharaman made two major new announcements today; announcements on auctioning mines, even if not the exact number, have been made before. First, as opposed to separate licenses for exploration and then for production – this added to considerable uncertainty – a comprehensive license is to be given; indeed, in the case of items like bauxite which is used to make aluminium, a coal mine will also be simultaneously auctioned in order to keep price of energy low.

Second, a Rs 50,000 crore investment is to be made over the next 2-3 years to not just evacuate Coal India’s production but also to ensure mechanized transfer of coal from mines to railway wagons; along with a related plan to increase railway lines to all major user plants, this will ensure that coal theft will be cut to a minimum, apart from keeping the environment clean.

The distinction between captive and non-captive mining has been abolished. That is positive for firms with captive mines as they can now sell their output in the open market, and this will boost revenues as well as augment supplies in the country; this also means that the old policy of giving preference to ‘captive’ users will go and, instead, all mines will be available for anyone including commercial miners.

An important clarification by mines secretary Sushil Kumar is that this is prospective. Firms like Tata Steel have mines that are due for auctioning in 2030-35; if the new policy was not prospective, these mines would have to be auctioned in 2025, the timeline for auctioning of non-captive or merchant mines. This would have hit well over a lakh crore rupees of investment in steel plants as, with this policy, there would be considerable uncertainty over supplies of both steel and coal.

In the past, Vedanta chief Anil Agarwal has pointed out that just 10% of India’s area with mining potential has been explored as compared to 95% in the case of Australia—Agarwal, in fact, is of the view that a sensible mining policy can cut minerals imports by half and create 20 million jobs in the bargain. Given India’s large imports, it is expected the policy changes will attract large investments; a more favourable tax regime, though, would boost investment levels.

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