India’s antiquated mining sector gets pushed into reform to enable private and foreign participation

The participation of the private sector will generate additional economic activity and is expected to create an additional 5.5 million jobs in the country.

The Narendra Modi government took a major step towards reforming India’s antiquated mining sector by passing the Mines and Minerals (Development and Regulation) Amendment Bill, 2021 in both Houses of Parliament in the just concluded Budget session of Parliament.

The Bill amends the Mines and Minerals (Development and Regulation) Act 1957 to:

* Allow private companies to enter mineral exploration and mining
* Remove restrictions on end use of minerals
* Allow captive mines to sell 50 per cent of their annual production in the open market. However, the lessee will have to pay additional charges for this
* Eases process of transferring mines from one lessee to another

The amended Bill will now become law when Indian President Ram Nath Kovind gives his assent. The new law will enable the country to reach the National Mineral Policy-mandated goal of increasing mineral production in the country by 200 per cent over the next seven years. Shockingly, even 73 years after Independence, only 10 per cent of India’s geological potential of 0.571 million sq km has been explored.

Indian mining sector lags global peers

Speaking in Parliament, India’s Coal & Mines and Parliamentary Affairs Minister Prahlad Joshi said the mining sector in India is still very weak and accounts for only 1.5 per cent of the country’s GDP, whereas in other mineral-rich nations such as Australia and South Africa, the share is about 7 per cent.

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The Bill, which seeks to encourage foreign and domestic companies with access to the latest technologies to enter the mining sector, will help bring this percentage closer to the average of India’s peer nations. The participation of the private sector will generate additional economic activity and is expected to create an additional 5.5 million jobs in the country.

“Cooperative federalism is at the heart of our decisions. Powers have been delegated to States for grant of mineral concessions. We propose to assist State Govts in conducting auctions if they fail or face challenges," Joshi tweeted.

Reading the fine print

The existing Act authorises the Government of India to reserve any mine (other than coal, lignite and atomic minerals) to be leased for a particular end use such as ore for a steel factory. These are known as captive mines. The new Bill provides that no mine shall be reserved for any particular end use.

This will give mining companies the freedom to sell their produce to any buyer of their choice. This broadening of their customer base is expected to lead to better price realisation and will contribute to the financial viability of the sector.

Another major pain point for miners is licences and permits. Miners have to go to multiple authorities for different clearances and approvals. This creates regulatory delays, encourages corruption, leads to price and time overruns at mining projects and often endangers project viability.

Easy statutory clearance norms

Under the existing law, once a mining lease expires, the mine is auctioned and statutory clearances granted to the previous lessee are assigned to the new lessee for a period of only two years, within which he/she has to obtain fresh clearances.

The amended Bill does away with this requirement and provides that all statutory clearances transferred from the old lessee will remain valid throughout their natural period of validity. This will significantly lower the compliance burden of the mining sector and also remove a major source of corruption in the system.

Further, the new Bill will simplify life for investors by completely scrapping fees charged on transfer of mineral concessions for non-auctioned captive mines, rationalising the entire stamp duty structure and by proposing a National Mineral Index to make statutory payments transparent and non-arbitrary.

Mining sector to be revolutionised

These changes are expected to revolutionise a sector that has remained a quasi-public sector monopoly and attract investments from the biggest mining companies in the world, such as Rio Tinto, BHP Billiton, Anglo American and others.

Competition from these companies will force existing Indian miners to also raise their game both in terms of efficiency as well technology and transparency.