One of the key backbones of Indian economy, the mining industry is witnessing reforms aimed to broaden the growth potentials. The reforms however have been receiving a mixed bag of responses within the industry
Blessed with a natural topography India is a home to a rich mineral resource. Standing tall as the fourth largest producer of coal in the world, the country produces 95 minerals – of which four are fuel oriented, 10 metallic, 23 non-metallic, 55 minor minerals and three atomic minerals. The sector is one among the key contributors of the Indian economy – both directly through mineral resources and indirectly as raw material providers for the infrastructure sectors.
The importance of the sector by itself could have been a major reason for the Government to think and act upon brining in reforms within the mining policies existent in India. A slew of growth focused reforms were put forth by the Government aiming to boost up the potentials. A key noteworthy amongst these was the increased scope of participation for private players – that could not just attract domestic involvements but also lump-sum foreign investments.
Mapping the Performance
As per the recent market assessment report released by IBEF, the country’s coal production stood at 730.87 million tonnes (MT) in FY20 and reached up to 545.46 MT in FY21 (as of January 2021). Iron ore production on the other hand stood at 112 MT in FY21. According to the World Steel Association, India’s crude steel production posted a rise of 7.4 per cent YoY, reaching 10 MT. Production of aluminium stood at 3.65 MT in FY20 and aluminium exports stood at US$20.18 million in the same period.
As per the analysts the increased focus on infrastructure and construction activities across the country is the key demand driving force for the mining sector. Power and Energy followed by cement manufacturing and real estate industries also add up to the overall demand figures. The country’s commercial and residential building businesses continue to pull in the major chunk of demand for iron and steel.
The country though has an abundant source of mineral deposits, as per the annual report disclosed by the Ministry of Mines for 2020, the mining of major minerals is spread over only around 3.258 lakh hectares. The sector hence withholds immense potential to explore further. In addition, apart from being one among the key contributors for the economy the sector also is a major employment provider for a large chunk of organized and unorganized working population, especially from the rural areas. As per the public data available, the industry provides direct employment to over one crore people and supports more than five crore (approx.) population to earn their livelihood.
Growth Focused
The industry amidst the pandemic has been an epicenter of reformative measures. A key among these is the reformation of Mining and Mineral Policy aimed to scale up the production capacities of the Government owned companies.
Another noteworthy move was through the Union Budget 2021, wherein a 7.5 per cent reduction was brought in the customs duty on semis, flat and long products of non-alloy, alloy and stainless steel products. The measure is suggested to bring in a much needed relief to the growth punctured MSMEs. With an aim to scale up the recycling works on copper, the Government also announced a reduction from 5 per cent to 2.5 per cent on its import duty in the Budget 2021.
As per the sources from IBEF market research group, the aim put forth through the National Steel Policy to ramp up the steel consumption to 160 kg by 2030-31 will further escalate the growth prospects for the sector. The government in particular has also cleared its aim to increase the rural steel consumption to 38 kg peer capita from the present 19.6 per capita by 2030-31.
Why Reforms?
The Government through its slew of initiatives though clarified its stand to elevate the growth prospects for the mining industry, also suggested a need to bring in reforms to redefine the operational processes of the sector. For the very first time, the Centre made a crucial decision to bring in the auction system for all the new mining and old lease renewals. This was brought in through the Mines and Mineral Development and Regulation Amendment Act, 2015 and was again amended in 2020. As per the amendment, captive miners could sell up to 50 per cent of their production after meeting the required essentials of their end-use plant and on paying additional royalty to the State Government. The Centre through this move emphasized on the gains the individual State bodies could achieve from the miners. The Act also focuses to release around 500 potential mining sites that have remained inaccessible owing to the existing regulatory frameworks. Furthermore, proposals are also being made to create a better statutory definition for illegal mining.
“We are committed to bring in structural reforms to the mining sector. This move will increase participation of the private sector in mineral exploration. Such measures will redefine the norms of exploration for auction of mineral blocks and thereby ensure a seamless transition from exploration to production,” said Pralhad Joshi, the Union Minister of Mines during the Global Mining Summit in December 2020.
The reforms though is being lauded by the Government as growth focused, the approach has brought in a mixed bag of responses within the mining sector. While most of mining majors are expected to turn out as the maximum beneficiaries of these measures, industry bodies of mine lease holders pose a different opinion.
As per the Federation of Indian Mineral Industries (FIMI) the move to bring the auction system could hamper the growth of mining sector. The body is a confederation of mine lease holders. “Auctions can neither serve for the public good nor bring in a fair allocation of resources. The sole focus here is to maximize State revenues. Such measures will bring in adverse effects on a long-term mineral development in the country and on the socio-economic benefits. Auctions did not prove to be as transparent or fair as it was put forth,” stated FIMI in a recent media statement.
Another major criticism seen was in the Government’s rush to bring in the reforms. The proposals to bring in the reforms though were released in late August, 2020 the comments from public, state and territories, industry bodies and such other stakeholders were invited in a very short span of just 10 days. Highlighting the issue was the Mineral Inheritors Rights Association. The body suggested the move as a serious violation of India’s Pre-Legislative Consultation Policy. “Only 10 days was provided to comment on the proposal of mining reforms which could have huge implications across the country. Moreover, such proper consultation was not done with the state bodies or the industry associations and stakeholders in such a short span of time.”
Despite the criticisms the Government however maintains its firm stand on bringing in the reforms and puts forth the same as a need of the hour for the sector to flourish and prosper. It would be hence interesting to see how the future would unfold for the sector. Especially with the economies adopting to a ‘New Normal’ the ability of the reformed sector to support the economy will be put to test in the near future.
