Govt must rescue and revive mining sector to boost economic recovery; here’s what needs to be done

Updated: July 10, 2020 5:05 PM

The mining sector is a core driver of a nation’s economic development. The sector is a significant contributor to GDP, a major source of employment, and a catalyst of growth in other vital industries.

Exploration, extraction and management of minerals have to be guided by national goals and perspectives, to be integrated into the overall strategy of the country’s economic development.
  • Vishnu Sudarsan and Kartikeya G.S.

The mining sector is a core driver of a nation’s economic development. The sector is a significant contributor to GDP, a major source of employment, and a catalyst of growth in other vital industries (such as power, steel, cement, etc.) that are, in turn, critical for overall economic development. As aptly stated in the National Mineral Policy, 2019 (‘NMP’): “Minerals are a valuable natural resource being the vital raw material for the core sectors of the economy. Exploration, extraction and management of minerals have to be guided by national goals and perspectives, to be integrated into the overall strategy of the country’s economic development. Endeavour shall be to promote domestic industry, reduce import dependency, and feed into Make in India initiative.”

India is richly endowed with metallic and non-metallic mineral resources – the country produces as many as 95 minerals, which includes 4 fuel, 10 metallic, 23 non-metallic, 3 atomic and 55 minor minerals. Considering this abundance of minerals in India, the mining sector has huge economic potential. However, this potential is yet to be fully realised.

Reform to Rebound

India, like much of the world, has been left reeling as a result of the black swan impact of COVID-19.
Ensuring economic rebound is now an issue of high priority. The mining sector has the potential to play a crucial role in making this aspiration a reality both in terms of its own economic output as well as in responding to the demands of other allied/ dependent industries. Additionally, the sector has the capacity to create over 5 crore jobs directly and indirectly which will be vital given the widescale unemployment that has been brought about by the current crisis. However, for the sector to do so efficaciously, there is a need to address the clear and present fallout of the pandemic, as well as the various issues that have hampered and hamstrung its growth.

This article proposes measures to suitably address identified challenges unique to the mining industry, both in general and as a result of the present crisis. In doing so, the article builds on the reform initiatives outlined in the NMP, viz., incentivising exploration through seamless transmission to mining, pre-identification of ‘no-go areas’, simpler and time-bound procedures for granting permits, harmonising royalty rates with international standards, and assuring security of tenure.

Immediate Relief Measures

At the outset, in order to grant relief from the plunging prices of minerals and slumping demand, it should be considered to offer rebates or reductions in royalty payments and contributions to the District Mineral Fund and National Mineral Exploration Trust. Another urgent relief measure to be considered is waiving the GST compensation cess on coking-coal for power intensive industries such as aluminium and streel.

Addressing Systemic Issues

New Exploration Framework

Exploration is an expensive and high-risk proposition with an extremely low success rate. The current
dispensation for exploration contemplates a non-exclusive reconnaissance permit, and a composite
licence (i.e., a prospecting licence cum mining lease). However, the present dispensation leaves a lot to be desired.

For starters, the non-exclusivity of the reconnaissance permit and the lack of in-built transition to mineral exploitation make the concession unattractive to the industry. With respect to composite licences, since it is the State Government that is responsible for notifying mineral blocks for auction, there is often undue delay in initiation of auctions, and the very real risk of blocks being considered sub-optimal by bidders. Another challenge is that of the mineral auction process being completed, only for environmental clearances to be refused – this results in much time, effort and investment being wastefully expended.

In order to address these issues, it may be considered for the Central Government and State Governments to work together to develop a mineral exploration atlas that divides the geography of India into grids. Based on the mineral atlas, applicants should be permitted to freely carve out an area and seek a composite license in respect of the same. Upon receipt of an application, the State Government should put up for auction the area so carved out by the applicant. The applicant may be given an incentive in the auction process (e.g., a right to match). The grant of the concession may be subject to checks in the form of periodic relinquishment and minimum investment requirements. This approach would be in line with the Open Acreage Licensing Policy currently in vogue in the Oil & Gas industry.

As an immediate measure, the Central Government should hasten the issuance of rules laying down requisite bidding parameters necessary to operationalise the newly introduced Section 10C of the Mines and Minerals (Development and Regulation) Act, 1957 (whereby holders of non-exclusive reconnaissance permits for deep-seated minerals (i.e., minerals which occur at a depth of more than
300 meters, with poor surface manifestations) may be granted composite licences or mining leases).

Simplifying Approvals Framework

Presently, developers may expend considerable time and effort on a mineral block, only for environmental clearances to be subsequently denied. In this regard, the atlas described above should set out predefined ‘no-go’ areas where reconnaissance, prospecting or mining operations cannot be undertaken. Such areas may be identified based on the presence of reserve forests, sensitive eco-zones, coastal areas, defence land, et al.

Additionally, there are currently multiple permits that have to be variously obtained under the Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981,
and the Environment (Protection) Act, 1986 (and the rules and notifications issued thereunder). This
creates multiple overlapping applications processes, despite mostly involving the same granting
authority, i.e., the respective pollution control board.

In this regard, taking cue from this Government’s earlier successful attempts to consolidate and streamline laws (e.g., labour, bankruptcy, etc.), the legislations and executive rules relating to environmental protection should be consolidated in a comprehensive code. In doing so, care should also be taken to restructure and rationalize the approvals process in a manner that avoids overlap and repetition, particularly when the granting authority is one and the same.

Rationalising Royalty

India’s rates of royalty are amongst the highest in the world. This royalty plays a substantial part in driving up costs of production as well as the cost of end-use products produced from the mineral. The high incidence of royalties coupled with the flat structure of royalty discourages investment in mineral processing and value addition, which, in turn, impedes uptake of new technologies which may enhance sustainability and economic growth. Further, there are presently 60 different royalty rates for 55 minerals with varied bases, making India’s royalty regime amongst the world’s most cumbersome.

The rates of royalty should be rationalised by way of benchmarking the same with other mining jurisdictions, and ensuring appropriate incentives for efficiency, economical use of the resources, good performance and optimum investments. In particular, the constituent components of the base value on which royalty is charged should be reconsidered to avoid a situation of a ‘royalty on royalty’. Further, to encourage competition amongst the states to attract investments, State Government’s should be allowed to offer concessional rates of royalty similar to the practice in Australia and Canada.

Tenure of Leases

Currently, the law prescribes a fixed tenure of mining concessions that is unrelated to the actual mineral potential and realisable ore in a block. Such prescribed tenure of leases causes manifold problems. Firstly, it leads to closure of mine prior to complete exhaustion of mineral resources, which runs contrary to the objective of mineral development and conservation. Secondly, reauctioning the block to a new lessee requires existing lessee to remove all the equipment thereby allowing the former to invest anew in requisite equipment/labour. This is time consuming and inefficient.

In order to avoid the above stated issues, the tenure of all the mining leases should be linked to exhaustion or depletion of minerals to such an extent that it is no longer economical to work the mineral. For existing leases, a similar allowance may be made subject to prescribed conditions, including payment of additional dues by the lessee over and above the existing royalties.

The Road Ahead

The world presently faces an unprecedented economic challenge, and it is incumbent on governments to respond responsibly and demonstrably. To this end, policy makers and industry players should work together and put in concerted efforts to revive, rescue and rebuild the mining sector, thus aiding the country’s overall economic recovery.

  • Vishnu Sudarsan is Partner & Kartikeya G.S. is Principal Associate, J Sagar Associates. Views expressed are the authors’ own.

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