Mining sector — unburdening the legacy issues

Richa Mishra | Updated on January 22, 2021

Under the ground The vast potential of the Indian mining sector remains untapped   -  Reuters

The government plans to bring in structural reforms in this crucial sector. But the devil lies in the detail

India has huge mineral deposits, but the country’s mining sector is still suffering from legacy issues. Making a fresh attempt for a course correction, the Union Cabinet recently approved a blueprint to usher in reforms in the mining sector.

This blueprint, which will be presented in the coming Parliament session, proposes to amend the Mines and Mineral (Development and Regulation) Act, 1957, clarifying doubts on double taxation, rationalising stamp duty and developing the National Mineral Index, among others.

This is not the first attempt by a government to bring in reforms in this sector. But why did the earlier attempts not yield significant results? What were the constraints? Why has the potential of the sector not being fully realised?

According to the government’s own assessment, traditionally, one percentage point growth in mining pushes up the growth rate of industrial production by 1.2-1.4 percentage points. Also, one direct job in the sector creates 10 indirect jobs. The mineral sector’s contribution to the GDP is only 1.75 per cent, currently. Despite having a huge potential, the country is far from being Atmanirbhar in mineral production. India imports minerals worth over ₹2.5-lakh crore every year whereas the domestic production is only half of that, at ₹1.25-lakh crore.

With the latest move, the government aims to increase minerals production by 200 per cent in seven years. But can it achieve that? There is an urgent need to unlock the sector, everyone agrees, but still remain cautious.

According to Aruna Sharma, a Development Economist and a former Secretary to the government, “Let us say a move has been made. Intent is there. But the devil lies in the detail. One has to see what the rules say once the amendments pass Parliament muster.”

Auctions -- a mixed bag

For example, the “auction only” regime for allocation of mineral blocks was introduced by the Modi government under the MMDR (Amendment) Act, 2015. However, holders of partially or minimally explored blocks were protected and kept out of the auction regime. This relief was given under Section 10A (2)(b) of the Act. But these concessions have neither resulted in a mining lease nor have they reached closure till date.

Similarly, existing holders of Letters of Intent were given protection and kept out of the auction regime on the condition that they will obtain mining leases in a two-year period, by January 2017. This relief was given under Section 10A(2)(c) of the Act. These holders also have not been able to obtain mining leases so far.

India’s huge mineral reserves (about 2.7-lakh hectares of mineral land) are locked because of legacy issues created by the provisions of Section 10A (2) (b) and 10A (2) (c). Also, public sector enterprises have for long been sitting on a large number of blocks without producing.

Hence, the government, after wide consultations with States, ministries, industry associations, public and NITI Aayog, plans to bring in major structural reforms that can help India become Atmanirbhar in the mineral sector.

A step towards this is to resolve the legacy issues by amending Section 10A (2)(b) and 10A (2)(c) of the MMDR Act and granting mineral rights only through auction for these blocks. It also proposes to reimburseexploration expenditure of those lease holders whose rights under Section 10A(2)(b) have lapsed.

If a PSU does not obtain a mining lease in the specified time, its allotted mineral block will be auctioned by the State government.

The major objective of the latest set of reforms is to generate jobs, reduce imports and increase production by bringing large mineral blocks into auction.

These amendments will bring a large number of mines for auction. The governmentbelieves this will help strengthen the “auction only” regime and boost transparency in the system.

The counterpoint

Will this lead to a maturing of the mining sector? RK Sharma, Secretary-General, Federation of Indian Mineral Industries, feels that the proposed mining reforms are not going to help in establishing a matured system.

“One of the major reforms which is being highlighted is repealing of Section 10 A (2)(b) thereby claiming to make more than 500 mineral blocks available for auction.

It is worth mentioning that while amending the MMDR Act, 1957 in 2015, the government had acknowledged the valuable contribution made by these license holders by introducing Section 10A(2)(b).

“And now removing it from the Act and offering such blocks for auction is against natural justice and will have far reaching adverse implications on the growth of the domestic mineral sector besides tarnishing the image of the country globally,” he said adding “It will also show that the government has faltered on its Act and is bound to lead to irreparable loss of investors’ confidence in Indian mineral sector, apart from multiple litigation in Courts resulting in such an exercise of the government being rendered completely futile.”

Moreover, it will also affect adoption of state-of-the-art technology required in exploration and mining sector besides impeding much-needed FDI, he said adding that “the recent experience of auctioning of coal blocks for commercial mining is a testimony where none of the international mining companies evinced interest to participate despite best efforts of the government to attract FDI in coal sector.”

Implementation, the key

While Sharma may have a point, it is also important to note that the government has been taking corrective measures. If implemented properly they will strengthen the auction regime, increase production by auctioning large number of mineral blocks as almost 500-plus non-operational blocks will be made available for auction.

But, as is the case with electricity, in mining too, States play a critical role. It will be important for the Centre to have States on board. It needs to adopt a consultative approach for the sector. Besides, on paper, the blueprint seems attractive but it remains to be seen when it finally becomes a law, how good the rules are to implement it. Till then one will have to wait and watch.


Published on January 22, 2021

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