By Aruna Sharma
The mining sector is plagued by lack of a holistic approach, and unpredictable policymaking. The industry contributes 2.5% of India's GDP, and employs more than a million people. A policy paralysis in the sector could have a strong bearing on the economy, and hit sectors that are already battling the slowdown. The biggest challenge the sector faces is the perception that mining damages the environment.
But, modern technologies allow extraction with minimal damage, and subsequent replenishment of soil and plantation of forests means very little environmental destruction. Mining techniques like conveyor belts and slurry pipelines have also brought down the negative environmental impact. However, delayed decision-making and lack of oversight continue to be challenges.
There are about 3,100 major mines in India, including 560 metal mines, and 600 coal mines. Ensuring unhindered exploration for new mines needs constant effort on the government's part.
Under the new policy, mines are to be auctioned instead of being allocated. This brings transparency, but delays due to absence of clear timelines for conducting auctions results in non-availability of raw material to industry. The import of material that India is already blessed with is on the rise, hurting trade deficit and forex reserves. Relooking this approach is crucial to ensure both quality and quantity. Three minerals-coal, coking coal, and iron ore-are key to maintaining India's economic growth. The government needs to ensure there is no delay in granting mining leases to ensure their steady supply.
Coal: India is currently the fourth largest producer in the world, with reserves estimated to be to the tune of 315.14 billion metric tonne (mt)-the fifth largest in the world. We have huge thermal coal deposits, but imports are increasing in double digits. As the prime minister mentioned in his address at the Global Business Forum in New York, "In a poor country like India… we will have to change the ways of mining and we have to carry out underground mining so that it does not damage the environment." He also mentioned coal gasification, which gives clean energy, as a solution for which the right technology is being considered.
Ensuring quality coal supply near the point of use is the basic principle to avoid logistical burdens. Currently, Coal India doesn't necessarily provide industry with coal from the same mine, creating inefficiency in the mineral's calorie use. Similarly, the auction route may disrupt logistical convenience.
While transparency in allocation is a must, it is equally important to address these issues to optimise coal use. If all blocks, instead of small portions, are auctioned, bids can be made depending on logistical convenience and quality of mines, rather than on a random basis. Also, environment clearances for technology and transport are a better alternative to a ban on mining. It is important to adopt non-polluting technologies to make mining possible.
Coking coal: India imports nearly 45 million tonnes (mt) of coking coal at a cost of $188/mt. While it is important to replace imports, ash content in the coking coal available in India is high. Thus, there is need to allocate new coking coal mines in Jharkhand, Odisha and Madhya Pradesh, and also attract technology and investment in washeries to reduce ash content. The ash can be used in the cement industry and brick-making. The government is auctioning 21 coal mines for end-use in non-regulated sectors, and six coking coal mines for end-use in iron and steel. Five coal mines are allotted to power sector, nine for sale of coal, and one for the iron and steel industry. Here, too, coal gasification will enable reduction of coking coal dependency.
Iron Ore: At the height of the mineral boom in 2010, before the Supreme Court clamped down on illegal mining, India produced 209 mt of iron ore. Production surpassed 205 mt in 2018, mainly due to increased production in Odisha.
The levy of 30% export duty on iron ore will discourage its export, but there is no export duty on pellets. So, it is prudent to have steel plants in close proximity to iron ore mines.
Delay in amending Section 8A (4) of the Mines and Minerals (Development and Regulation), or MMDR, Act that allows auctioning of mines only on expiry of the lease period will disrupt mineral supply from captive mines. This can bring down the steel industry, which is performing well despite the slowdown-any further delay in auctions will disrupt production of ~60 mt of iron ore affecting nearly 40 mt of steel-making.
Post-auctions, transfer of ownership to make mines operative will take upto a year. The resulting mineral shortage could spur further imports. The recent decision to allow SAIL to mine commercially in captive mines will provide a buffer in case availability of iron ore falls because of delay in clearing the bids. It will also stabilise the input cost for steel.
To remove cartelisation in commercial mining, it is important to have a minimum production clause. If production up to the environment clearance limit is not possible, this minimum requirement should be imposed on the miners.
The concerns of environmental degradation have put restrictions of the quantity being mined in Karnataka and Goa. In Karnataka, these have made iron ore production more expensive, resulting in more imports. Closed mines, including Kudremukh, need to restart. Goa produces low quality of iron ore only for exports-modern techniques can help reduce the associated environmental impact. The Centre should set up a committee of the steel, mining and environment ministries, and state governments to resolve this issue. The need is to rationalise the approach. The mining, when completed, will result in good forest cover in these areas.
Further, five royalties are levied on miners. These must be subsumed under one, with back-end distribution between district, state, and central authorities. Globally, the royalty is around 4%, but, in India, it is 15%. Then, there are the 30% district mineral fund levy on the royalty amount, surcharge, and GST. Once a detailed regional exploration is concluded, the prospector undertakes development and operation of the mine.
For this, the prospector is required to obtain a lease, generally granted for 30 years, extendable for a further 20 years. In addition to the levies under the MMDR Act, a mine operator must pay fees and levies for the use of forest land for mining operations under the Forest Conservation Act, 1980, and the Indian Forest Act, 1927. These are (i) forest tax, levied on forest produce removed from forest areas, and its rate varies from state to state; (ii) Compensatory forestation charges, levied to undertake forestation.
Globally, mining royalty arrangements are profit-based (levied on the net cash flow or some measure of profit from a mining project), ad-valorem-based (levied as a percentage of the value of production of a mining project), or unit-based (levied as a set charge per physical unit of production of a mining project). India's mining royalty regime must be aligned with global practices to encourage investments and modernisation.
Mining in India can generate significant employment and prevent further decline of the GDP. India is blessed with major mines, the need is to optimise them to achieve self-sufficiency, and bring down or replace imports.
(The author is a development economist and former secretary, Government of India. Views are personal)