Light at the end of the tunnel?

Though the use of the ordinance route is questionable, the amendments to the Mines and Minerals (Development and Regulation) Act can go a long way in clearing up the legal and regulatory uncertainties that have plagued the mining sector over the past few years. Take iron ore, of which India was a prodigious producer and exporter until 2010-11. The discovery of a number of cases of illegal mining led the judiciary to impose a blanket ban on the activity, creating severe input constraints for steelmakers. The new provisions may help usher in more transparency in the allotment and operation of mines, attract more serious players and hopefully improve overall output as well.

The changes address many issues that have held back fresh investments in the sector. The proposed auction process for allotment of mining leases, rather than the prevailing first-come first-served system, will reduce discretionary allotments and maximise revenue for the exchequer. True, miners have flagged the difficulty of setting reserve prices for auctions. But the use of State agencies (including the Geological Survey of India) to assess reserves and the existence of global benchmark prices should make price-setting for minerals a much easier task than, say, for telecom spectrum. The amendments also seek to expedite commercial operations for miners by extending the lease period from 30 to 50 years and setting time-bound limits for approvals by State governments. This is welcome, given that over 63,000 mining applications are said to be pending with various State governments. Finally, by enhancing the maximum prospecting area for a mining lease from 25 sq km to 500 sq km and production area from 10 to 100 sq km, the new rules propose to filter out small and non-serious players from the sector. This could help usher in better technology and mining practices and make it easier for regulators to monitor players.

The only grey area in the new rules relates to the compensation of the local population displaced or affected by mining activity. While the earlier draft had proposed 26 per cent of the miners’ profit to be shared with District Mineral Foundations (DMFs) for welfare activities, the latest version stops with asking for an ‘additional’ royalty payment. Given the huge environmental costs associated with mining operations, miners should not be allowed to think that contribution to these trusts gives them the licence to maximise profits at the expense of the environment or local community. As a safeguard, the law does contain substantially higher penalties for illegal mining and other rule violations. But historically, monitoring and enforcement have been key areas of failure in the mining sector. Unless State and local agencies get their act together on monitoring and enforcement, the stringent norms laid down in the new mining law will come to naught.

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