Creating A Favourable Future

Anuj Mudaliar, Fact.MR, India, discusses new reforms proposed and implemented by the government for the mining industry in India, with a focus on regional and operational drivers, restraints, and opportunities.

The mining industry in India plays a key role in the economy of the country. The sector is not only important in terms of its contribution to GDP, it also provides resources required by the massive Indian infrastructure and manufacturing sectors. Specifically, the country is home to some of the largest reserves of minerals and metals such as coal, titanium, aluminium, and more.

According to India’s Minister of Mines Pralhad Joshi, the country’s mining sector will play a key role in the government’s ambitious target of reaching a US$5 trillion economy by 2025. Joshi has also stated that more than 70% of Indian power generation can be attributed to coal. Consequently, the mining industry is critical to the country’s energy security in addition to the agriculture and manufacturing industries.

Industry experts have opined that exploration activities in the country need to be incentivised with reforms such as the recent commercial coal block auction. Emphasis has been given to the importance of opening the sector to private players in stimulating the national economy.

The industry will notably contribute to employment and downstream industries. In an eff ort to resolve long-standing issues that have restricted the growth of the mining sector, the government of India introduced the Mines and Minerals (Development and Regulation) Amendment Bill, 2021.

The diminishing contribution of the mining sector to the Indian GDP in recent times has been attributed by the Federation of Indian Mineral Industries to under-exploration and lower spending on exploration activities in India.

Favourable incentives from the state coupled with significant investments from private players will play key roles in the growth of the Indian mining industry for the foreseeable future.

The mining law in India has largely been left untouched since 1957, with notable changes only being made in 2015, 2016, and 2020 aft er the original Mines and Minerals (Development and Regulation) Act (MMDR Act) was introduced. It provided a framework to categorise mineral and metal resources overseen by the state and central governments, including mining leases and methods to ensure the well-being of locals in the mining area. Amendments have become the need of the hour to keep up with modern day industry requirements.

India produces over 90 diff erent minerals at over 1500 mining sites. The country is a global leader in coal and crude steel production. However, the sector contributes only around 1.75% of the national GDP. It is a country that is highly reliant on imports, despite a vast mineral reserve volume. Estimates project that only approximately 10% of the obvious geological potential of the country has been explored until now.

In March 2021, the Lok Sabha of India passed a bill to amend the MMDR Act, which sets stage for additional jobs in the sector, while allowing private players to bring in superior technologies into the mining sector. With the new regulations, India aims to improve on the potential of the sector to match that of resource rich countries, including Australia and South Africa.

According to the current Indian government, the amendments passed in 2021 aim to increase the contribution of mining to the national GDP by at least 1% from the current levels. In addition, the changes seek to bring in transparency in the mine auctioning process, while also improving on employment rates in the sector – according to a statement from the Ministry of Mines, India is expected to witness an influx of approximately 55 000 direct and indirect jobs owing to the amendment.

The amendments are expected to attract domestic and foreign investments, in addition to the incorporation of safe, eff ective, and sustainable technologies in the sector. The government has already permitted 100% foreign direct investment (FDI) under the automatic route for the sale of coal. This also includes processing infrastructure for coal mining activities.

As the bill is passed into law, the mining industry is projected to become significantly industry friendly. Until now, only government agencies including CMPDIL, GSI, and MECL have been involved in mining activities. With the amendments, for the first time in India, private organisations will be allowed to take part in mineral exploration activities.

Previous amendments to the MMDR Act between 2015 and 2020 have set the ground for the development of the Indian mining industry. For instance, leases were made transferable for minerals other than atomic minerals, coal and lignite, subject to the approval of the state government.

Until 2015, mining leases, reconnaissance permits, and prospecting licenses were allowed to be auctioned off to only those companies that were involved in production of iron or steel, power generation or coal processing, improving the potential for FDI. These restrictions were removed in the 2015 amendment, however restrictions still kept out bodies other than private entities with previous involvement in coal mining operations. Also, the lease period for non-metallic and metallic minerals has been extended to a duration of 50 years. The need for central government approval for mineral concessions has been removed, while streamlining competitive bidding processes.

The MMDR Act was also amended in 2016 to allow the transfer of mining leases through routes other than auctions, which are used for captive consumption, in order to minimise obstacles associated with stressed assets with mining concessions.

The 2020 amendments changed the eligibility for coal and lignite blocks. Companies no longer require prior experience in coal mining to participate in auctions. Furthermore, companies not involved in power, steel, or coal-washing activities have gained the potential to access cancelled coal mines.

The transfer of licenses was made available for all minerals and also permitted with the changes announced in 2020. Additionally, state governments were allowed to conduct advanced auctions of mining sites prior to the expiry of a lease, instead of waiting on the expiry date to take action.

The new amendments will bring about a number of changes that have the potential to revolutionise the Indian mining industry for years to come. Some of these include: Key provisions of the bill will allow the government bodies to extend mining leases to government-run firms

for a duration of 10 years, to improve on the efficiency of mine utilisation. Also, state governments can gain royalty payments to increase the duration of leases for

Central Public Sector Enterprises. The changes to the act will allow the central government to remove the distinction between captive and non-captive mines, by designating any facility as a captive mine. Such mines will allow the use of the facilities for any end use sector/industry. Unlike before, leaseholders for captive mines are not restricted to sell their ore to only captive industries.

Now, captive mines can sell up to half of all their ores in the open market, provided that they pay additional charges to the government for the same. The government can allow sales to go above the 50% cap if necessary. The District Mineral Foundation primarily operates to optimise the benefits for locals in the mining areas. The amendments will give the central government powers to direct the usage of funds of the foundation for the development of the locality. The amendments have removed the need for the conventional non-exclusive license permit required by companies to reconnoitre an area to assess mineral potential. The new act allows for only a two year permit for mining operations to start after the issuance of a license, which makes the reissuance of permits difficult owing to time constraints, while pushing for mines to become active faster. The new amendments provide license clearances for long-term mining operations, before providing an opportunity for the lease to be transferred to a new bidder. The government has also pushed amendments to keep mines from becoming inactive. Consequently, in a case where a state government is unable to auction off a mine, the central government can now step in to conduct the auction procedures. New amendments have removed regulatory differences between non-captive and captive mines for statutory payments. Also, the National Mineral Exploration Trust is set to become an autonomous organisation.

While the new amendments have the potential to substantially change the Indian mining scene, the bill faced opposition owing to a number of concerns, especially from the state governments – significant opposition has also been put forth by the Congress, who claim that the new bill aff ects the structure of the constitution.

Firstly, the auction process for mines in India have been conducted by state governments so far. State governments have raised concerns regarding the powers of the central government in managing the funding of the District Mineral Funds as per clause 10(i).

Also, the potential reduction of revenues from the state governments of India, owing to the fixing of royalties by the central government with regards to leases to government companies, is also a matter of concern. This is also an issue, where inactive mines may be auctioned off by the central government according to clause 14(iii).

Finally, the new laws are also being called potentially exploitative, owing to the risk of abuse and the impact on local tribal communities and the environment. While the reforms may prove economically beneficial, the anticipated rise in mining activities is expected to cause harm to already sensitive ecosystems across the country.

Furthermore, a number of vulnerable tribal groups currently reside in mining zones, and, as a result of the amendments, their residences are likely to be threatened. Issues of relocation, rehabilitation, and compensation have to be considered by governments in the future. S.S. Ulaka, a Congress Member of Parliament, suggested that a joint committee should be formed to cut down on adverse eff ects of the amendments, including: tribal members from mining areas, off icials from the Ministry of Tribal Aff airs, and the Environment and Forest ministry.

The projected boom in the mining sector from the amendments to the MMDR Act is expected to result in the metal, mineral and associated industries, which paves the way for further reforms in the future. With increasing exploration activities, the current high volumes of imports for materials such as copper, steel, iron, and coal in India are likely to reduce. This bodes well for the self-reliance initiatives that are preferred by the ruling BJP government.

Minister Joshi has stated that the government is seeking structural reforms including the standards of exploration for block auctions and open acreage licensing policy for allocation of mining rights in the country. Also, until now, companies had to take out exploration and mining licenses separately. However, with the new bill, this clause has been removed. Consequently, mining bodies can move directly from exploration to mining upon identifying a feasible site. The amendments also clear the way for additional jobs in the sector, along with a greater potential for metal and mineral exports through domestic and foreign investments into associated infrastructure.

With the National Mineral Exploration Trust becoming autonomous, ambiguities arising from potential political diff erences can be minimised. The independence of the regulatory bodies will minimise biases improving resource utilisation. Eff orts however, will be need to be made to improve cooperation between the state and central governments. Also care needs to be taken to minimise the environmental impact through the use of independent studies. The socio-political scene in India will play a key role in the developments of the industry, while meeting mineral security requirements of the country for the foreseeable future.

1. ‘The Mines and Minerals (Development and Regulation) Amendment

Act, 2021’, The Gazette of India Extraordinary, (28 March 2021), https:// mines.gov.in/writereaddata/UploadFile/mmdr28032021.pdf 2. GUIMBEAU, A., JI, J., MENON, N., and VAN DER MEULEN RODGERS, Y.,

‘Mining and Gender Gaps in India’, IZA Institute of Labor Economics, (November 2020), http://ftp.iza.org/dp13881.pdf