Policy Impetus: Reforms aimed at spurring growth of the mining sector

Reforms aimed at spurring growth of the mining sector

The mining sector forms the backbone of the country’s industrial, manufacturing and infrastructure sectors. India produces as many as 95 minerals, which comprise 4 fuel, 10 metallic, 23 non-metallic, 3 atomic and 55 minor minerals (including building and other materials). Since 2013-14, the mining sector has exhibited strong growth fundamentals. After a growth of -0.6 per cent in the index of industrial production in 2013-14, the sector recovered remarkably to exhibit a growth of 5.3 per cent in 2016-17. However, during the period April-November 2017-18, growth was subdued at 3 per cent. In fact, in the third quarter of 2017-18, economic activity picked up across sectors, with the exception of mining and quarrying. Overall, the performance of the mining industry is largely correlated with the performance of the manufacturing sector, as a number of subsegments are consumers of key minerals. At present, while the mining sector accounts for only about 2.3 per cent of the country’s GDP, the government aims to increase the contribution by about 1 percentage point in the next two-three years.

Key developments

Draft National Mineral Policy, 2018

The Ministry of Mines has unveiled the draft National Mineral Policy [NMP], 2018, which will be an amended version of the National Mineral Policy, 2008, and is in line with the Supreme Court’s directive to devise a fresh version by end-2017. There will be additions to the old policy to take a stricter view on illegal mining, and mandate conservation and environment protection.

The draft policy proposes offering mineral exploration companies the right of first refusal at the auction of any area explored by them, thereby enabling global mining exploration and production majors to step up investments in the country. Steps will be taken to facilitate the financing of mine development and exploration projects will be granted mining industry status. Other exploration incentives on the cards include a fixed royalty payment for the entire period of a mining lease, in case the discovered mineral asset is secured at the auction for development by an entity other than the exploration company, or a one-time down payment payable by the developer to the exploration agency. Besides, the government will establish a mining tenement system, which will be fully automatic, for the entire life cycle of the tenement.

The draft NMP, which was open for industry feedback till February 9, 2018, has received suggestions from various stakeholders. Slashing the royalty rates charged on mineral production, discouraging road transport of minerals while increasing the share of rail transportation, streamlining iron ore supply with the help of long-term supply agreements between steel companies and miners, and developing special mining zones to upgrade the scale of ore production in “iron-rich freehold areas”, are among the suggestions that the Ministry of Steel has proposed.

Private commercial mining in coal

The government has decided to open up the coal sector to commercial mining by private entities and has removed end-use restrictions as far as output of the auctioned mines is concerned. Under private commercial mining modalities approved by the cabinet, coal blocks will be allocated by “ascending forward” auctions in which the winner will be determined by the price per tonne of coal offered to the government of the state where the mine is located. The revenue from the auction of the coal mines can be utilised for the growth and development of backward areas, especially in the eastern part of the country.

The game-changing move aims to put an end to state-backed Coal India Limited’s monopoly (which was the lone commercial coal miner in the country for over four decades), allow the use of best possible technology, reduce coal imports and help stressed power plants attempt a turnaround through better fuel management. The reform is expected to lead to industry consolidation and the rise of large vertically integrated energy companies with interests in coal mining, power generation, transmission and distribution and retail supply. However, the government must auction larger blocks in sufficient numbers in order to attract new investments in high capacity equipment and encourage competition.

Draft National Mineral Exploration Trust Amendment Rules, 2018

The Ministry of Mines has prepared the draft National Mineral Exploration Trust Amendment Rules, 2018, seeking to amend the National Mineral Exploration Trust Rules, 2015. Some of the proposed amendments are:

  • States will have to deposit the funds collected under the National Mineral Exploration Trust (NMET) to the Consolidated Fund of India (CFI) instead of the trust’s own bank account. However, the CFI will still be administered by the Ministry of Mines as was the case earlier with the NMET.
  • The bank account of the trust shall be closed as soon as possible and the proceeds will be booked under a head in the public account of a state and be transferred to the CFI.
  • The NMET funds shall be non-lapsable under the non-interest-bearing section of the Public Account of India.
  • The Indian Bureau of Mines shall maintain an updated record of the amount transferred to the CFI along with a database of royalty payments and provide such information to the trust on a periodic basis.

National Mineral Exploration Policy, 2016

One of the biggest policy initiatives for the mining sector has been the introduction of the National Mineral Exploration Policy [NMEP],  2016. The policy encourages private sector participation through its revenue sharing model. It also emphasises the generation and dissemination of baseline geoscientific data. The resulting database will be deemed a public good. Industry stakeholders have welcomed the introduction of the NMEP. The general consensus within the industry is that the policy will promote growth in the sector as India currently lags behind many comparable economies with respect to exploration, and the creation of baseline geophysical and geochemical data.

Levy of goods and services tax

The introduction of the goods and services tax (GST), a unified tax rate replacing eight central taxes and subsuming nine state taxes, is expected to have an impact on all sectors, and the mining sector is no exception. While it may be too soon to assess the actual impact of GST on the mining sector, broadly speaking, the sector is expected to benefit from the unified tax regime as it previously attracted a number of indirect taxes and local levies. GST will be applicable on various mining activities such as exploration, mineral production, handling, transportation, supply, etc. The manufacturing and sale of all grades of iron and steel products such as iron rods, bars, scraps, etc. will be charged 18 per cent under the GST regime.

Issues and challenges

Some of the pressing concerns such as land use and its availability, shortage of skilled manpower, financial constraints, low productivity of equipment, and environmental issues continue to impact the sector and warrant immediate attention. There are problems with regard to technology deployment as well. With incompatible and unintegrated IT solutions being used in silos and most of the data generated not being used, the level of technology deployment is yet to mature. There are promising technologies available, but it will take time for these to be adopted. Financial constraints have been cited as a key factor that has led to low levels of technology adoption in the sector so far. Regulatory issues, poor supporting infrastructure, financial concerns and global factors leading to price volatility are other issues that continue to impact the mining industry.