The mining sector carries a weight of about 14.4 per cent on the Index of Industrial Production (IIP), but it grew at a compound annual growth rate of only 2.1 per cent between 2013 and 2020. Increases in mining activity are foundational to meeting the oft-stated target of growing GDP to $5 trillion.
Mining is a primary activity that produces basic materials to support secondary industrial activity. It also generates employment and reduces reliance on imports. India has substantial deposits of many key minerals. But it needs a combination of capital investment, a build-up of expertise and skills, and the induction of new technology to exploit these in a clean, safe, sustainable and profitable fashion. Achieving this would require the induction of private players who can provide a fresh impetus.
There have been policy changes that should be supportive, and the recent auction of coal blocks has kick-started this process of acceleration. The Geological Survey of India has almost doubled its exploration activity, starting about 400 exploration projects on various minerals.
The centre has notified the Mineral Laws (Amendment) Ordinance, 2020, which opened up coal mining to non-coal companies, removed restrictions on end-use, and introduced flexible criteria for bidders to participate in auctions. The foreign direct investment (FDI) cap in mining and exploration of metal and non-metal ores has been hiked to 100 per cent under the automatic route. Apart from the measures mentioned above, infrastructure status would also help in enabling easier credit.
A total of 500 mining blocks will be offered through an open auction process. A National Coal Index is being introduced and a National Mineral Index is also being finalised to facilitate transparent pricing. A new single-window clearance portal is being created for the coal sector with the aim of speeding up the operationalisation of mines.
The 19 coal blocks that were sold, out of the 41 put up for auction in the first tranche of auctions in 2020, are expected to generate annual revenues of nearly Rs 70 billion and generate over 69,000 jobs once they are operationalised. The details of a second tranche of 75 blocks, which will be put up for auction, are being finalised.
Technologically, and in terms of the associated skill sets, India’s mining sector lags. There is an urgent need to bring in automation and digital solutions to increase productivity, promote sustainable use of resources, lower fixed costs, and enhance safety. Artificial intelligence, machine learning and industrial IoT could help transform the sector’s dynamics.
The pandemic led to reduced demand for fuels and metals due to reduced activity downstream in construction and industry. But the economic rebound should mean a resurgence in demand for coal and other industrial minerals; indeed, there are signs this is already happening.
The sector holds enormous promise, but it has underperformed for decades. Adequate policy support and meaningful privatisation would provide a great stimulus.