Promising Prospects

Project pipeline and future outlook

India’s mining space has a promising project pipeline. At present, there are 208 mining projects on the anvil. Of these, 136 are under implementation while 72 have been announced. These projects have a total capacity of about 1,773.58 million tonnes (mt) and entail investments of Rs 2,104.8 billion.

The maximum upcoming capacity (1,005.34 mt) is in the private sector. However, in terms of number of projects, the central government owns the maximum number (174 out of 208), followed by the private sector and state governments. New units and greenfield projects account for 81 per cent of the mining capacity while the remaining capacity would come u p through expansion projects.

These projects are spread across 16 states. Maharashtra, which has a predominant share of bauxite and iron ore projects, has the largest capacity under development at 766 mt. Other states with significant projects in the pipeline are Odisha and Chhattisgarh.  Stage-wise, projects currently under implementation account for 47 per cent (826.24 mt) of the total project capacity.  Of the total 182 upcoming new units, about 68 per cent are coal projects. Similarly, coal mining accounts for 61 per cent of the expansion projects.

Coal accounts for the maximum share in the upcoming capacity, aggregating about 708 mt across 183 projects. The maximum number of coal mining projects (42) are in Jharkhand; however, the maximum capacity (233.34 mt) is concentrated in Chhattisgarh. Coal is followed by bauxite, which accounts for 506.35 mt of total capacity.

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Outlook for the near to medium term

As the growth trajectory of the Indian economy improves, sectors such as infrastructure and automobiles will develop renewed momentum, which would drive the demand for power and steel. This is further expected to drive the demand for minerals like coal and iron ore.

According to India Infrastructure Research, overall coal demand is expected to increase from 787 mt in 2014-15 (actual) to 902 mt in 2015-16 and further to 1,282 mt by 2019-20, a compound annual growth rate (CAGR) of 9.2 per cent between 2015-16 and 2019-20. On the supply side, coal supply from Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL) and captive power producers is expected to increase to 1,198 mt by 2019-20, almost doubling from the 600 mt in 2014-15. The maximum incremental production would come from CIL as it gears up to meet the central government’s “1 billion tonne” coal production target by 2020.  Production from captive coal mines though is expected to see the fastest growth.

Meanwhile, with regard to iron ore, production is expected to reach 242 mt by 2020 as regulatory restrictions are not likely to affect mining companies in the long term. Consequently, imports are likely to decline and exports are likely to bounce back. This may create an oversupply of the mineral in the domestic market, and thus lead to a decline in prices, which would reflect the global scenario.

On the investment front, easier foreign direct investment (FDI) norms bode well for the sector. In November 2015, the government simplified certain conditions in the FDI policy on mining and mineral separation of titanium-bearing minerals and ores (in terms of value addition and integrated activities). (FDI in this case falls under the government approval route.)

Besides, initiatives like Make in India and investments in infrastructure will also drive consumption of other minerals like lead, copper and aluminium. With amendments in key mining legislations such as the Mines and Minerals (Development and Regulation) [MMDR] Act, the scope for new mining capacities in iron ore, bauxite and coal has increased manyfold. With the government’s focus on ensuring transparency and certainty in policies, investment in the mining sector is projected to increase in the coming years. According to India Infrastructure Research, mining projects worth Rs 2,100 billion are at various stages of planning and implementation in the country.

The policy outlook for the mining sector looks optimistic, especially after the passage of the MMDR (Amendment) Bill, 2015. Greater transparency is expected in the sector with the grant of mineral concessions through auctions. Also, commercial mining has been allowed by the Ministry of Coal, though this is currently limited to government mining companies.

Meanwhile, the formation of district mineral foundations (DMFs), as proposed by the MMDR (Amendment) Bill, will lead to additional costs for the heavily taxed mining industry. DMFs are expected to be utilised for social development. In September 2015, the government notified that existing mining lease (ML) holders would pay 30 per cent of the royalty to DMFs while those who win MLs in auctions will be required to pay 10 per cent of the royalty.

Exploration is expected to pick up pace with the formation of the National Mineral Exploration Trust. The government is also reportedly working on a policy for offering about 100 large plots of land for exploration to global and domestic firms through a reverse auction, and a subsequent bidding round for mineral extraction.

Further, with the stabilisation of commodity markets, the upcoming auctions of key minerals like limestone and iron ore are likely to witness greater participation than in the past. Also, in January 2016, the Ministry of Mines notified a draft amendment permitting the transfer of captive MLs granted through routes other than auctions.

cover (Page 1)The way forward

Besides a number of policy developments in the past year, there has also been some action on the ground. The government is encouraging private sector participation by offering reasonable concessions on a case-to-case basis to enable the adoption of modern technologies in mining activities. In the coming fiscal year (2016-17), the sector is likely to receive a fresh impetus, especially as mine auctions commence. Going forward, it is critical to address the challenges including delays in clearances, restriction on mining activities, and poor technology. This could help bring the mining sector back on track after a period of slow growth.

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