By Arun Kumar*
India occupies a significant position in the production of many minerals across the globe, while for some, there is acute shortage. There continues to be a huge demand for minerals in view of rapid urbanisation and the growth in the country’s manufacturing sector. Against this background, this article will consider the impact of the 2015 amendment to the Mines and Minerals (Development and Regulation) Act 1957, and the 2020 Mineral Laws (Amendment) Ordinance.
There are several reasons why an assessment of the policy and regulatory landscape governing the sector are germane.
One, out of a total of 32.87 lakh sq km land area, the Geological Survey of India (GSI) has identified 5.71 lakh as of Obvious Geological Potential (OGP) for minerals. However, mining is carried out only in 1.5 per cent of the OGP area (not including building material like sand aggregates, etc).
Two, is the sector’s potential to strengthen the economy. The mining and quarrying (including petroleum and natural gas) sector’s contribution to India’s gross value added (GVA) accounted for about 2.38 per cent in 2018-19. The sector’s (including coal but excluding petroleum and natural gas) GDP contribution was 1.63 per cent in the same year. Contrary to this, the sector’s contributions to GDP in other mineral-rich countries like Australia and South Africa are to the tune of 7-8 per cent.
Three, India’s mining sector is a labour-intensive industry that creates employment opportunities in the hinterlands, which have limited potential for other economic activities. In 2012, the sector (excluding petroleum and natural gas) directly employed around 23.23 lakh workers. If indirect employment is added as a factor of 10 (as borne out by studies), the employment number comes closer to 232.30 lakh. It clearly has huge potential for employment generation, and can create (direct and indirect) employment to nearly 4 crore by 2025.
Four, India’s geological potential is huge, with its land mass deriving from the same formation – the Golconda plate – as mineral-rich Australia and south east Africa. Therefore, there is a very well-founded basis to the assertion that India has a rich endowment of minerals.
2015 Amendment
The 2015 amendment was incorporated with a view to engender transparency in the mining sector. Some positive highlights of this major reform initiative:
Auction to be the sole method of granting mineral concessions, thus removing discretion and arbitrariness
Extended tenure of granting mining leases from 30 to 50 years
Safeguarding the interests of host communities/affected people in the mining areas by establishing the District Mineral Foundation (DMF)
Introducing the concept of composite license (prospecting licence-cum-mining lease, or PL-cum-MLs)
Facilitating ease of procedure and removal of delays: For minerals in Part C of the First Schedule, the system of seeking prior approval from the central government has been done away with, and states can now auction all minerals except atomic minerals.
Following the amendment, state governments have adopted the auctioning mechanism to grant PL-cum-MLs and mining leases. As of 31 December 2019, 76 mineral blocks have been auctioned, out of which 9 are PL-cum-MLs. The remaining 76 are for the grant of mining leases.
However, the pace of these auctions is slow, and operationalisation slower still. Out of the 76 blocks auctioned, only 10 mines have been operationalised in the intervening 5-year period. Of these 10, five were iron ore mines that were already functional but had to be auctioned due to Supreme Court orders. Once the blocks are auctioned, central/state governments should ensure expediting various clearances. In this regard, it will be useful for the Ministry of Mines to develop an effective monitoring mechanism.
The extractions from these auctioned mines, presuming their full operation in due course, will show a growth of about 2.5 per cent per annum. While this may lead to mineral scarcity in the long-run, the revenues accrual will be high due to the scarcity premium. This has already been seen in the auctions.
The estimated revenue accrual over 50 years, including additional revenue from auctions, can be estimated through the auction (as of 31 December 2019) of the 76 blocks:
Estimated value of resources: INR 2,52,515 crore
Additional revenue from auctions: INR 1,57,562 crore
Royalty, District Mineral Foundation (DMF), National Mineral Exploration Trust (NMET) etc: INR 44, 563 crore
Revenue to government over 50 years: INR 202,125 crore
The additional revenue stands at INR 1,57,562 crore. Taken as a percentage of estimated resources, this works out to 62.4 per cent. With DMF and NMET levies, it comes to 80 per cent. This means that of the total value of minerals extracted, 80 per cent of the value of minerals will go to the government. The high bids are also a measure of mineral scarcity, with some blocks being bid to over 100 per cent of the cost of minerals to be extracted again – just to ensure supply security. Due to a distorted market, growth is likely to be 2.5 per cent per annum.
2020 Ordinance
The 2020 Ordinance was promulgated in January to mitigate some of the lacunae in the MMDR Act that were proving to be a hindrance in private sector mineral exploration. It also aims to introduce continuity in the production of vital minerals from mines whose leases were due to expire in March 2020. Finally, this move will help raise the mineral sector’s rate of growth.
Lease Allocations
The earlier provisions of the 1957 Act did not allow exploration licence holders the right to apply for to PL-cum-ML or ML. There have been virtually no takers for exploration licences as a result of this restrictive provision. Now, non-exclusive reconnaissance permit (NERP) holders will have the right to obtain PL-cum-MLs or MLs for deep-seated minerals, or such minerals as notified by the central government. This provision will give a boost to exploration activities by attracting large-scale participation, which, in turn, will lead to production.
It is imperative that exploration license holders are able to seamlessly transition from composite licenses to mining leases. Though only deep-seated minerals are mentioned in the ordinance, it provides a window for other minerals as well. Minerals, which may surficial, and are not of a strategic nature, should also be brought under this regime. This will raise the rate of growth from the current 2.5 per cent per annum.
The deemed approval/clearances of rights for a period of two years with respect to mines otherwise due to expire is a welcome initiative for continuity of production. The existing non-captive leases were to expire on 31 March 2020. This would have had serious repercussions in terms of supply disruptions of vital raw materials, particularly for the steel industry, which could have affected almost one-third of the supply chain. The ordinance redresses this shortcoming. Once it is ratified, the Ministry of Mines will be empowered to lay down timeliness for various clearances. There should however also have been a provision extending the same treatment to the auctioning of a working mine.
Operational Efficiency
The efficiency of mine operations is another issue. Larger mines lend themselves to more scientific mining in the shape of mining plans, more mechanisation, and environmental controls. An emerging way of handing operations is the emergence of the mine-developer-cum-operator (MDO). Earlier used primarily in the coal industry, PSUs and miners in non-coal areas have now begun adopting this mechanism as well.
While speaking of the benefits, however, it is also important to acknowledge that the system is sometimes prone to misuse by MDOs. MDOs have on occasion illegally squeezed out the lessee to become de-facto owners. Smaller mine owners find it difficult to take on MDOs and ultimately succumb to their takeover. On the other hand, MDOs bring a certain efficiency to operations. This dilemma must be addressed by the government.
MDOs undertake a spectrum of activities; these may include obtaining statutory clearance, land acquisition, planning, mine operations, machinery deployment, mineral extraction, and transportation to dispatch points. Under this framework, the requirements for safety, adherence to labour standards, and environment compliances rest with the principal lessee. However, when MDOs obtain statutory clearances and help with land acquisition, they are prone to misusing their positions.
Why are MDOs engaged if there is such a high possibility of abuse of the system? This may be because lessees prefer MDOs to develop and manage their mines, given that they themselves could be lacking funds, technology, management skills, and domain expertise. Through this model, the lessees are able to hedge their financial and project risks. Given this set of issues, MDOs should only be employed in larger mines where there is a balance of power between the lessee and the MDO.
Conclusion
With a conducive policy environment, the mining sector’s GDP contribution could be raised from the current 1.63 per cent (excluding hydrocarbons) to 2.5 per cent. Similarly, direct/indirect employment could be raised from INR 2.3 crore to INR 4 crore. It thus has significant potential to contribute to the vision of India as a US$ 5 trillion economy.
*Arun Kumar is former Secretary, Ministry of Mines, Government of India.
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