Little is spent on exploration of minerals, regulation of mining remains an issue

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Updated: Jul 04, 2019 1:49 AM

India has a lot of potential for discovery of minerals as the continental landmass and its offshore consists of several crustal elements going back ages.

mining, mining policy, mining minerals, mining regulations, minerals, exploration of minerals, opinion newsMining in India is largely public-sector-driven.

An industrial strategy in India will benefit from the country utilising its mineral potential. According to a FICCI report, every 1% increase in the growth rate of mining and quarrying leads to an increase of 1.2-1.4% in the growth rate of industrial production. Yet India has lacked an industrial policy since 1991, with the result that manufacturing’s share of GDP has stagnated at 16% since then, and its share in employment fell from 12.8% in 2012 to 11.5% in 2016 (while NSSO PLFS 2017-18 shows no increase).

India has a lot of potential for discovery of minerals as the continental landmass and its offshore consists of several crustal elements going back ages. India is blessed with ample resources of a number of minerals and has the geological environment for many others, but currently mining accounts only for around 2% of GDP. Extraction and management of minerals must be integrated into the overall industrial strategy. But India’s imports of non-fuel minerals are much higher than exports. Small-sized mines dominate the industry. In addition, mining in India is largely public-sector-driven, with public enterprises accounting for around 66% of the value of mineral production; the rest emanates from medium and small mines that are largely private-operated.

Little is being spent on exploration of minerals. If neither governments, Union or state, nor PSUs are able to invest on the scale required, then foreign and private firms will need to be incentivised. However, the government can well claim that 100% FDI has been permitted in mining. So, what is holding investment back?

Regulation of mining remains an issue. Given the widespread regulatory failure, there is a need to create an independent mining regulatory authority for oversight at the central and state level to restore investor confidence. Primary regulatory responsibility must lie with state governments. The first National Mineral Policy (NMP 1993) allowed FDI up to 50% with no limit on captive FDI, but little interest was shown by foreign investors. Meanwhile, the lack of resources with public sector agencies such as the Geological Survey of India, Mineral Exploration Corporation Ltd, and other state and central agencies resulted in limited promotional exploration. Then the National Mineral Exploration Policy came in 2016, which is a structured framework for comprehensive exploration in the country with a judicious interplay of government support and private innovation and enterprise.

However, FDI has not increased in mining, although it has grown sharply in other sectors (mainly in services, and to some extent in brownfield manufacturing in the form of takeovers). The amount of FDI in mining was $1.32 million in 2000-01 and $55.75 million in 2016-17. Clearly, mining is not attracting foreign investment.

There have been repeated violations by existing mining companies (Indian and foreign), as well as governments, of social and environmental impact assessment guidelines. As part of its industrial policy, the Union government will have to rethink mining policy. The situation was brought to a head by a August 2017 Supreme Court judgment, which regarded the mineral policy as outdated, and stated that a “fresh, more effective, meaningful and implementable policy” needs to be developed.

Several issues are important (TERI studies have pointed out). First, data from the Geological Survey of India’s geological mapping should be available in a geographic information system format to facilitate entrepreneurs to take investment decisions for exploration. Second, the Mines and Minerals (Development and Regulation) Amendment Act, 2015, has made auctions as the only mode of granting mineral concessions. This implies that the Indian Bureau of Mines and the State Directorates of Mining need to have the capacity to undertake mineral resource estimate and reserve valuations. This requires their capacity-building.

Third, mining has both backward and forward linkages; these need to be encouraged. This can be done by allowing free transfer of concessions including mining leases, and by giving a preference to value-addition and end-use when calling bids for mineral deposits. Fourth, scientific human resources including knowledge at the frontiers of geoscience has emerged as a bottleneck. India will need more mining engineers, geologists, geophysicists, geochemists and geoinformation experts. The ministry of mines estimated that up to 2025 there will be a need to equip about 3,000 geoscientists and 40,000 mining engineers over and above the normal supply (Kumar and Ganeshan, 2015).

Finally, because past mining operations had not given much attention to rehabilitation of people uprooted by mining, the MMDR Act 2015 provides for the creation of a District Mineral Foundation in every district affected by mining-related operations to work for the benefit of persons and areas affected by such operations. These foundations should deliver on rehabilitation of old mines as well as affected peoples; else, the affected will agitate and demand mines to be closed.

There is an electric vehicle (EV) demand rush that is likely to happen. There is a major implication for global demand for minerals used in EV batteries. Cobalt demand will rise five times, as will demand for copper and nickel. In a 2016 study (Council on Energy, Environment and Water), 12 most critical minerals (with high economic importance and high supply risk) for India’s manufacturing growth were identified. The study says that for seven of these—and nearly half of the 49 minerals analysed—India is totally import-dependent. If India is going to bet big on EVs, then the challenge is even greater. Again, the Chinese dominance in EV-relevant minerals is overwhelming. This creates exclusive markets for Chinese battery and EV manufacturers, a situation similar to solar panels. India needs a comprehensive strategy, i.e. the role of industrial policy, in this sector.

(The writer is Professor of Economics, JNU, and co-author of ‘What’s the Plan? India’s Development and Planning—Its Past and Future’ (Cambridge University Press). Views are personal.)

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