Reforms in the mining sector: Comments and recommendations

On August 24, 2020, the Ministry of Mines, Government of India, had issued a Notice on proposed reforms in the mining sector under nine different categories. The last date of submitting comments and suggestions was September 3, 2020. Our recommendations are as follows.

1. Increasing mineral production and employment generation by redefining the norms of exploration of mineral blocks and ensuring seamless transition from exploration to production

Why should exploration be the primary responsibility of the Geological Survey of India (GSI), Mineral Exploration Corporation Limited (MECL), and state Departments of Mines and Geology (DMGs)? These institutions may work on publishing the baseline data. The Ministry of Mines accepts that the process takes time and is ridden with uncertainties. Further, the exploration of minerals has its own geological idiosyncrasies. The respective mining companies / junior experts can undertake such exploration activities relatively efficiently, thus saving precious resources. Why can’t mining companies, juniors, in particular, do this as a profit-making business enterprise? In an efficient business model, the explorers may not need funding from NMET. NMET may not have sufficient resources to compensate the exploration companies. The exploration budget of India is very small compared to other successful mining jurisdictions.

2. Resolving legacy issues to move towards an auction only regime for allocation of mineral resources

Amendments in Sections 10A(2)(b) and 10A(2)(c) don’t make a convincing case. These have been subject to a debate around why appropriate actions were missing. An active and robust policy could have helped grant Prospecting Licences (PLs) and Mining Leases (MLs) well within the allocated period. The logic of the exploration expenditure incurred is somewhat fragile, given that it might lead to lengthy legal battles with regards to the amount which had been spent by respective companies. Even if such estimates can be agreed to, there wouldn’t be reimbursement of the present value of the lost prospective future income stream. There is a need to revisit the treatment of legacy cases.

3. Removing the distinction between captive and non-captive mines

Removing the distinction between captive and merchant mining is a welcome step. A level playing field will allow merchant miners to become more competitive and innovative, resulting in cheaper downstream products and a boost to exports. However, it is not clear why captive miners can sell only 50% of the total mineral excavated in the previous year. The captive miners or merchant miners in collusion with downstream plants can lead to market price distortions. The prices declared by the Indian Bureau of Mines (IBM) need to be fair, objective, and transparent, to ensure that revenues to the exchequer are not hit. Another factor is how can the high auction bids, sometimes above 100%, be economically justified in the backdrop of efficient operations of the mines.

4. Developing a transparent mineral index

Transparency in estimating the mineral index of non-fuel minerals such as that for coal would lead to efficient allocation of resources with adequate returns to the exchequer. The prices have to be determined in the open market and computed as rigorously as for the coal index.

5. Clarify the definition of illegal mining

Illegal mining has to be discouraged through appropriate punitive actions.

6. Rationalise stamp duty

A step in the right direction.

7. Amendments to DMF Rules

Building and rebuilding tangible assets, such as medical care facilities, education centres, and transport links are useful for long-term socio-economic development of mining-affected communities. For short-term gains, the focus should also be given to skill development, to ensure income security for the affected districts.

8. Bringing unused mineral blocks into production to generate employment

A step in the right direction.

9. Review of the functioning of NMET

An autonomous NMET would be able to execute the tasks assigned to it. However, it will not have enough resources to meet India’s exploration needs.

Additional Comments^[2]

The National Mineral Policy (2019)[3] (NMP) provides a vision of how India should implement future policy to accelerate the growth of the production of non-fuel minerals. The Indian government has set multi-pronged targets to advance socio-economic growth in India. The NMP states: “The outcomes expected from these policy proposals are, an increase in the production of MCDR (Mineral Conservation and Development Rules, 2017) minerals (in value terms) by 200% in 7 years; and on the other hand, reduce the trade deficit in minerals sector by 50% in 7 years.”[4] Other related targeted expectations include: to make India a US$5 trillion economy by 2024-25; to increase India’s exports from US$500 billion in 2018 up to US$1000 billion by 2024, and doubling farmers’ income by 2022-23 (from its 2015-16 level). These targets seem more distant now that the fifth bi-monthly Monetary Policy Statement of the RBI (December 5, 2019) states that India is likely to grow by only 5% in 2019-20. All the subsectors of the economy have taken growth hits.

The NMP unambiguously states that exploration, extraction, and management should add to the country’s economic development by boosting domestic industry (Make in India) and reducing import dependence. It assures a regulatory environment that is conducive for “ease of doing business with simpler, transparent and time-bound procedures for obtaining clearances”, along with the security of tenures with rights of transferability of concessions. The Indian Bureau of Mines (IBM) and the State DMGs would be the regulatory agencies through e-governance and IT-enabled monitoring along the mining chain. The state would facilitate and regulate exploration and mining activities, collect taxes, and provide infrastructure. Incentives shall be provided to private entities to invest in state-of-the-art technology. The policy also mentions “an endeavour to auction mineral blocks with pre-embedded statutory clearances”.  However, it would be pertinent to review and suggest alternative methods of allocation that are objective, fair, and transparent.

The government agencies would continue to perform the tasks of survey and exploration and encourage the private sector to undertake exploration activities. Public funds shall be used to explore areas that lack private investments due to uncertainty.

Efforts shall be made to prospect and explore minerals where India has the geological potential, but low resource and reserve base. These include “energy-critical minerals, fertiliser minerals, precious metals and stones, strategic minerals and other deep-seated minerals which are otherwise difficult to access and for which the country is mainly dependent on imports.”

A much-needed single regulatory authority has been envisioned in the policy: “A unified authority in the form of an inter-ministerial body under Ministry of Mines, with members like Ministry of Coal, Ministry of Earth Sciences, MoEF&CC, Ministry of Tribal Affairs, Ministry of Rural Development, Ministry of Panchayati Raj, Ministry of Steel, including state governments, shall be constituted to institutionalise a mechanism for ensuring sustainable mining with adequate concerns for the environment and socio-economic issues in the mining areas, and to advise the Government on rates of royalty, dead rent etc.” It will be ideal if the authority executes its work to facilitate optimum utilisation of mineral resources.

NMP 2019 states: “Under the ‘Make in India’ initiative, the Government of India aims to increase the share of the manufacturing sector in the economy. This national initiative requires a holistic development of the mineral sector on a sustainable basis to fulfil the demand of downstream industries dependent on mineral/ore supply.”

Finally, “The success of this national mineral policy will be critical in propelling India on to a loftier development trajectory. Successful implementation of this policy and shall be ensured by achieving a national consensus among various key stakeholders and their commitments to fulfil its underlying principles and objectives.”

The recent set of Atmanirbhar reforms of the mineral sector announced by the Finance Minister under the Part-4 of post-COVID-19 stimulus package are likely to give a significant boost to the exploration of all the minerals, including critical minerals.^[5]

While attention needs to be paid to efficient exploration and allocation of leases to all non-fuel minerals, critical minerals including the rare-earth elements (REEs) need focused attention. KABIL should consult with private sector players, from mining as well as manufacturing, to seek useful and practical suggestions for becoming self-reliant in critical minerals and downstream products now, and in future.

As recommended by the DST-CEEW study, a not-for-profit National Centre for Mineral Targeting (NCMT) should be set up, exploration and R&D in mining and mineral processing technologies should be enhanced, and due consideration should be given to the strategic acquisition of mines abroad and signing of diplomatic and trade agreements.

While exploration and extraction of critical minerals are essential, it can be accomplished commercially only when the entire value chain is developed simultaneously, from exploration to mining, to extraction, and product development. Investors should be incentivised to make risky investments with the assurance of the security of title and tenure.

Improving the post-leasing clearance mechanism is one of the most important reforms for making mining activity efficient. Instead of getting separate environmental and social clearances, the evaluation may be done based on one integrated impact assessment, viz. environment and social impact assessment report (ESIA). This comprehensive report would factor in the environment, forest and biodiversity, and the local community aspects of the mining project under consideration.[6]

In a previous piece, we argued that to become “a globally competitive and self-reliant sustainable mining hub, India must ensure mineral security for the 21st century, provide inter-generationally optimum resources to the states’ exchequers and adequate returns to the mining companies, rely on state-of-the-art technology and create additional jobs, while ensuring environmental sustainability and welfare of the affected communities.”[7] It is only then that the mining sector can become a real catalyst for growth and development.