Mining reforms: India needs a National Mineral Index

Published: July 25, 2020 6:50 AM

Development of the NMI, as done for all the channels in coal (regulated and unregulated) can provide a one-stop solution for a number of concerns.

The decision to open the coal sector for commercial mining, implementation of National Coal Index (NCI) and commencement of the auction process of commercial coal blocks, highlight the seriousness and commitment of the government to make India self-reliant.

By Ansuman Das

The mining sector is poised to play a crucial role in the revival of the economy. It will form the foundation of all our efforts towards the much-needed economic recovery dented by the pandemic. The changing market scenario and operation dynamics require extensive mining reforms to overcome this situation and turbocharge the economy.

Hitting the bulls-eye, and when it was needed the most, the prime minister announced a well-structured Covid relief package, clubbed with a visionary call of Atmanirbhar Bharat to make India a self-reliant nation. The concept is not to isolate from globalisation, but to look inside, harness our strengths and make India a global trade superpower.

To execute the above, it is paramount to cut unnecessary red tape, shake-off bureaucratic/systemic lethargy and replace them with measures which will promote trust, ease of doing business and attract investments. The current central government known for its big bang reforms and its transformative approach to development has introduced a slew of legislative reforms in coal & mining sector.

The decision to open the coal sector for commercial mining, implementation of National Coal Index (NCI) and commencement of the auction process of commercial coal blocks, highlight the seriousness and commitment of the government to make India self-reliant. These initiatives will help the country save around Rs 80,000 crore per year on account of coal import by augmenting production in the country. In addition, the auctions will generate a healthy revenue stream and create multiple livelihood opportunities.

On similar lines, the mining sector is eagerly waiting for the implementation of the already announced mining sector reforms, like the introduction of a single-stage seamless auction of exploration cum mining cum production regime. This will attract best-in-class technology providers from around the globe for partnering and investing in India with a surety of getting the right to produce once the discovery is established.

Joint auction of bauxite and coal will be a big booster for the aluminium sector where today we fulfil 60% of the country’s demand from imports even when the domestic production capacity of 4.1 million tonnes (MT) is over and above the national requirement of 4 MT. To be self-reliant in this strategic metal we need to improve the competitiveness of domestic production. A competitive domestic aluminium sector will save annual forex outgo worth of around Rs 40,000 crore. In addition, it will encourage investors to tap in the growing aluminium demand which is expected to double to 8-10 MT in next the five years, and will attract fresh investment of Rs 1.8 lakh crore ($25 bn). With abundant reserves of bauxite and coal, we have the potential to be self-sufficient, competitive and be the global alternative to China.

Formation of National Mineral Index (NMI), in line with the NCI, would perhaps be one of the most historic reforms for this sector.  Over the years, multiple aspersions have been cast on the efficacy of the tabulation of the average sale price of a mineral. Despite mineral concession rules providing for basic principles, the methodology of tabulation has always been observed as that of a narrow one.

NCI has provided us with the fundamentals wherein transactions from all channels are properly captured and principals of periodic publication (every two months) allow all the bidders to bid judiciously with a transparent process in place clearly defining the mineral valuation, the extent of revenue share and subsequent payment of royalty and other taxes. Acknowledging the nature and consumption of the Indian coal, which is different from the global consumption pattern, the index has rightly refrained from linking it to international indices showing that the think tank involved have applied their minds and have provided a fair and judicious solution.

Without reinventing the wheel, the NMI could also adopt the strong suits of the NCI capturing details from all price sources such as captive and non-captive mines, etc. This methodology, just as in coal, will reflect the true and useful value of the minerals, and will boost the attractiveness of the Indian mining sector.

A just and uniform system for the development of NMI for all minerals will ensure a competitive mining sector inviting healthy competition in auctions and active participation by smaller mining companies.  Development of the NMI by including prices from captive and non-captive mines, etc, as done for all the channels in coal (regulated and unregulated) can provide a one-stop solution to a number of concerns, resolve difficulties faced by miners and states in the auction of limestone and bauxite (Metal-Grade) blocks, resolve concerns of royalty on royalty as done in the coal index where prices considered are independent of royalty, DMF, NMET and other taxes. It also shall provide a benchmark solution to current ambiguities in the average sales price system and prevent illegal mining. Royalty and other taxes can also be streamlined with the introduction of the NMI.

A well thought out system is already in place for coal. Therefore, the time is ripe for the introduction of the NMI as implemented in case of coal for expeditious implementation of the mining reforms and accelerated unlocking of the nation’s mining potential which is so vital to PM’s clarion call for Atmanirbhar Bharat.

The author is Ex-CMD NALCO and Former Chairman, Public Enterprises Selection Board, GOI and metals & mining expert. Views are personal

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