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Govt fixes mining policy, at long last

Sunil Jain

Given the mining sector s potential to both create millions of jobs and save billions of dollars of forex, it was always a surprise that the government was so slow to fix issues that have prevented it from growing fast, but the good news is that it has finally started making some attempt to fix things. In February, the Cabinet cleared an oil and gas package that resolved many outstanding issues in the sector. The package could have been more generous but it was nonetheless an important step forward; instead of allowing market prices for only gas produced from new discoveries, it could have even been allowed for producing fields since more profits for oilcos will incentivise them to explore more. And last week, the government made some important reforms in the case of non-oil minerals these account for 25% of India s import bill if oil is not included and around 55% if it is (see graphic).

As the Niti Aayog strategy paper on this pointed out, India s prospective geology is broadly similar to that of Western Australia, especially in relation to iron ore, bauxite, coal, diamonds and heavy mineral sand , but of the area identified as rich in minerals, only 10% has been explored the corresponding figure for Australia is 95% and an even smaller 1.5% is presently being mined. According to Niti Aayog, even doubling the area explored to 20% of obvious geological potential can create an additional 5 million jobs by 2022-23, from the current 10 million. Indeed, Niti Aayog points out that India s imports of minerals are roughly seven times as high as the domestic output; such is the poor level of exploration and production.

While the finer details of the policy are yet to be made available, the Cabinet note makes some important departures from the current policy. Right now, if a firm that has a reconnaissance permit (RP) finds evidence of minerals, it has to inform the government which then auctions off the area; the new policy says such firms will get the right of first refusal. This is an important confidence-booster since no firm would like to find deposits of a mineral and then see the area being given to a competitor.

And much like the open acreage policy in the oil and gas sector, firms will be allowed to give the government the coordinates of the area they would like to mine in, and this will then be put up for auction in a short period of time. The policy also promises to harmonise taxes and various levies in keeping with global benchmarks; this is important because, as compared to 8-12% levels globally, Indian levies on most non-oil minerals works out to around 30% of top-line revenues. In other words, high levies make
exploration of minerals uncompetitive.

And since PSUs tend to have a lot of good acreage that they may not necessarily be exploiting, the policy says these acreages will be auctioned off to the private sector. India s largest imports of minerals, including oil, take place in sectors dominated by PSUs. ONGC, for instance, has some of the best acreages in the country but its crude oil production fell from 25.9 million tonnes in FY08 to 22.2 million in FY17 while that of Cairn rose from 2.6 million tonnes to 9.4 million tonnes. Indeed, since FY14, when the prime minister spoke of reducing the import content of the oil sector by 10% over the next five years, the import-intensity has risen.

Apart from getting the policy right, what is equally critical is to fix the current levels of implementation such as the delays in getting permission. So, Niti Aayog has recommended that all statutory approvals should mandatorily be granted within a period of 180 days. It suggests that, if this is not given, a provision for a deemed-to-have-been-given approval be put in place in the law; it also suggests that local forest officers may be empowered to grant permission under the forests law for exploration in forest areas. This is critical since environmental clearances take up to even 390 days to get, and it was found in the case of the government-owned Coal India that it was routine practice for the government to give environment clearances late and then retrospectively condone the mining that was illegal since it took place without the environmental clearances but Coal India has been fined `40,000 crore already for such illegal mining!

It is equally important to do more stringent 24 7 checks on the quality of mining through the use of drones and satellite imagery, for instance so that local communities do not feel their lands are being destroyed by mining companies and valuable forest cover removed. Also, less than a fourth of the District Mineral Foundation fund meant to benefit local people affected by mining activity has been spent and, last year, the Supreme Court pulled up the government for not spending `90,000 crore of the Compensatory Afforestation Fund Management and Planning Authority (CAMPA) fund; had enough forestry been done on time, the local population would be less averse to fresh mining.

With such a massive failure to monetise the country s mineral assets and mineral imports comprising around 55% of imports, is it any wonder that the current account deficit mostly looks like it is about to swing out of control? Ideally, these changes should have been made early in the NDA s tenure, and the country would have both saved forex as well as generated millions of jobs over the last five years. But, better late than never, since the next government will reap the benefits of the reforms over the past few weeks; and prime minister Modi is hoping it will be one led by him.