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Investment opportunities in Indian

Mining Industry
Author: Shiv Shankar Prasad, AGM (Mining) & Anurag Ojha,
Manager (Mining), NMDC Ltd

Introduction: India has achieved impressive GDP growth rate of over 7% per annum in
last few years. However sustaining growth of over 8% per annum will require a significant
increase in investment level. Minerals are valuable resources vital for infrastructure
development, capital goods and basic industries. Our country produces as many as 87 minerals
including 4 fuel minerals, 10 metallic minerals, 47 non-metallic minerals, 3 atomic & 23 minor
minerals. Government permits 100% FDI in exploration, mining, mineral processing (except
non-atomic and non-fuel minerals). Mining and Quarrying sector contributed 2% to the GDP in
the year 2014-15. Mining is interlinked with industrial development. Providing security of raw
material is of prime importance. Growth and sustainability depends in three pillars - Boosting
expenditure, influx of private sector investment & creation of demand.
Indias growth rate is the highest in the world. But yet there are challenges faced by the Mining
Industry. The challenges that has inhibited the growth are - Delay in Land Acquisition, Allotment
of Mining Lease, Infrastructure Constraints, and Delay in grant of statutory clearances, Lack of
Transparent & Stable Fiscal Regime, Inflexible Labour Laws, Lack of Speedy Resolution of
Disputes and Lack of Investment in Exploration for augmentation of Mineral resource.
With the MMDR (amendment) Act 2015, fillip and impetus has been given to Mining Industry
through removal of discretion in grant of Mineral concession, allowing opening of Mines closed
due to pendency of decision, providing security of tenure to lease, removal of delay by
eliminating requirement of prior approval from Central Government and allowing easy
transferability of Mineral Concession granted through Auction.
Private Sector investment have been impacted by bottlenecks in getting statutory clearances and
subdued consumer demand during last 2 years. However Government initiative of Digital
India, Make in India and Start up in India are likely to foster the investment. Also meeting
the ambitious target of Steel producing capacity to 300 MT by 2025 is likely to be achieved
which will simultaneously act as catalyst in increasing per capita Consumption of steel from
present 60 Kg (2014-15) to higher level.
The paper focuses on how investment in industry can further be bolstered through stimulating
infrastructure development in Mining area, Reforms in Land acquisition Act, thrust to
exploration by increasing expenditure in Exploration & determining its level as per international
standard, Reforms in Lab our Laws, Focus on Demand creation, roadmap for lowering Corporate
tax Rate with removal of Subsidies.

Infrastructure: One of the key growth drivers for our economy. By developing world
class infrastructure we can efficiently and safely connect different work area which will ensure
Indias overall development. The growth of Mining industry has been adversely affected due tolack of rail connectivity to ports, inadequate rake capacity for domestic & export market, poor
road condition and low capacity handling of ports.
Cost Comparison of Goods handling transport system
Type of transport
system
Cost(Rs/KM)

Road

Rail

Water ways

1.5

0.25

From above table, it is clear that water-ways are much cheaper and also environment friendly.
India has its unique advantages of 7500 KM coastline passing through 14 states along with
14500 KM of potentially navigable waterways. In addition, 116 rivers across the country provide
35,000 Km of Navigable stretches.
In total we have 50,000 KM of waterways, so the need of hour is to develop it which will change
the face of India.
Cost Comparison of Logistics Cost
Country
India
Logistic Cost(in % of 18
GDP))

China
08-10

European Country
10-12

By promoting water transport, logistic cost will come down significantly, which will give fillip to
Mineral Industry, who are involved in exporting of Mineral & Manufacturing Industry.
Impetus can be further can be given to Mining Industry by development of Dedicated Railway
Freight Corridor in Iron Bearing Regions of the country, which shall be Joint Venture between
railways and State Government.
Proposed initiative
Development of Dedicated Railway Freight
Corridor in Joint Venture with railways and
State Government.

Implication
(i)Various Steel, Cement and power plants
would get nearest rail link for transportation of
their raw material and Finished products.
(ii)Foster statutory approvals of Land
acquisition (due to involvement of State
Government).

Transparent and stable tax regime


Indian Mining Sector is highest taxed in world as compared to other countries
Comparison on effective Tax Rate (%)
Country

Effective Tax
Rate

Recommendation

India

45

Russia

32

(i)Roadmap for lowering Corporate tax Rate and


incentivize investment. A predicative tax regime to
reduce tax rates with removal of subsidies.

Australia

39

(ii) Need to revisit on Dividend Distribution Tax

Chile

40

Indonesia

30

(iii)Reduce the corporate tax rate from 30 % to 25%


and bringing a systematic approach to Taxation in a
way that can improve Ease of Doing Business Score

China

32

(iv) Rationalize Inverted Duty structure by taxing


finished Goods at Higher rate than raw materials.

Taxes/Duties/Cess etc. should not be prohibitive and should help industry to survive, sustain &
grow.

Exploration
Mineral exploration is key to attract investment in Mining Sector. India still is dependent on
import of non-fuel minerals which include Gallium, Platinum Group of Metals, Antimony,
Molybdenum, Tin, Tungsten, Cobalt, Sulphur, and Borax etc. New resources are to be identified
through enhanced exploration activities.
With the preliminary Geological data of GSI which provides G4/G3 data, is not sufficient to
make investment decision, the Detailed Exploration is essential to attract investment in Mining
Sectors has identified 5.71 Lakh Square Kilometers as Obvious Geological potential area, but
there is not ant detailed Exploration activity.

Exploration and Mining are independent of each other. Building of Comprehensive Database of
country Mineral resource, while Mining can be done on requirement. Exploration of Mineral of
Mineral on urgent basis is need of hour and through NMET, a concrete shape to give direction
and energy to Exploration. Australia has accomplished 100% regional exploration, whereas India
has done only 10% Government has recently drafted National Mineral Exploration Policy for
giving thrust to Exploration by giving priorities in the following areas:
Particulars
Key Issues
National Mineral
Exploration Policy

(1) Baseline Geoscientific data generation and its dissemination.


(2) Priorities for Minerals for General and detailed Exploration
(3) Institution for undergoing research in Mineral deposit through
Public-private Collaboration.
(4) Beneficiation of Low Grade ore and its economic utilization
(5) Incentive to Private sector for participation in Greenfield
Exploration project.

Creation of Business Environment in Mining


Industry
India has improved its position from last year 134 to 130 in World Bank ease of Doing Business
ranking 2016.The improvement in two indicator Starting a business and Getting Electricity,
pushed India up the ladder. Recently Ease of doing Business in Mining sector has been evolved
with implementation of MMDR (amendment), Act, 2015
Act/Rules/Policy(Governmen
t
Initiative)

Salient Features

MMDR

(i)Removal of Discretion in grant of Mineral concession.

(Amendment)

(ii)Allowing opening of Mines where closed due to pendency of


decision, Subsequent or Deemed Renewal

Act, 2015

(iii)Security of tenure for Mining Lease holder for a period of 50 years


(iv)Removal of Delay by elimination of prior approval from Central
Government except for Minerals specified in Part A & Part B of First
Schedule
(v) Allowing easy transferability of Mineral Concession granted through
Auction.
Digital India

(i)Will bring transparency and corruption free processes in allocation of


Mines by granting Mineral Blocks through e-auction.

Insolvency & bankruptcy


Bill,2016

(i)Setting of an insolvency and bankruptcy Board of India to regulate


insolvency professional & agencies.
(ii)Deal with insolvency cases within 180 days that may arise on account
of Business failures or Economic downturn.
(iii) This will help in early identification of financial distress so that
steps can be taken for its revival.

Ease of doing Business in Mining industry can further be bolstered through following proposed
measures.
Proposed system
(1) Development of e-portal pertaining
to closing and opening of Mines
and ancillary activities.

(2)Compiling of comprehensive list of


clearances

Implication
(i)Investor will be able to use the
services 24*7 online.
(ii)Uploading of required document and
submitting the forms online.
(iii)Tracking of application forms
online.
(iv)Obtaining the needed Licenses,
getting approvals and downloading the
approvals.
This list shall include all the clearances
which are to taken from Central and
State Government

Reforms in Land acquisition: In India the process of acquiring


land is very tedious process, but the current government has been trying to ease the process of
acquisition. The acquisition process is still pending for final approval in parliament whose
important provision are mentioned below:
Policy
Land acquisition Bill,2015

Important provision
(1)Land will not be acquired for private
hospitals, educational institution
(2)Land can be acquired only up to 1 KM on
both sides of railway/Line/Road of industrial
corridors
(3) Government will conduct survey of Waste
land
(4) Social infrastructure removed as an
exempted category
(5) Compulsory employment to at least one
members of affected family of Farm laborers.
(6) Authorities to hold hearing in District
where Land is being acquired.
The point of contention in the Bill due to which it is pending in parliament are-Social impact
assessment and restoration of Consent clause.
Recommendation: Creation of Land Bank by a public agency in which interested Land owner
could deposit their Land Parcels. Under this system the public agency will act as an intermediary
and transfers Land to the Project proponent .The public agency will transfer rent from Project
proponent to original Land owner. This scheme will be beneficial for marginal farmers, who find
farming unattractive due to small area of Holdings.
Focus on Demand creation of Mining Industry: Investment is not so much encouraging in
present dynamics because there is lack of demand. Private sector are already have expanded their
capacities due to past investment. Some specific measures shall be taken for Mineral sector
having skewed market.
At present internationally there is 30% drop in input costs such as steel scrap, coke & Iron Ore,
due to this steel plants across the Globe have adjusted their Selling price. No significant drop in
input costs has been perceived for Indian Steel Company. Over the Last 18 months, the
difference between prices of Imported & Domestic Steel has increased sharply to Rs.6000 per
Tonne.
Original equipment manufacturers and other major users have started importing finished forgings
from Taiwan and South Korea. Import of Iron Ore has become viable due to sharp decline in
global prices and also Freight rate have also fallen heavily adding to viability of Imports.

In this sluggish and subdued market condition, demand of Mineral industry can be created
through focus on following parameters.
Focus on growth of Mining Industry through changes in taxation system
Government initiative (Annual budget,201617)

Implication

(1)Reduction in rate of corporate Tax to 25%


for new companies without any change in
taxation of Existing companies

(1)Enable Mineral industry to return to


growth and profitability.

(2)Modification in Custom & excise duty


structure to incentivize Domestic value
addition and push to make in India campaign

(2)Bring down cost and improve


competitiveness of Domestic industry
engaged in Mining and allied industry.

(3)Small Miners with turnover not exceeding


Rs.5 Crore have to pat Corporate tax at Rate
of 29% plus surcharge plus Cess.

(3)Facilitate in opening of Mines having


small Lease Hold area.

(4)Increase in Infrastructure spending by 23%


to Rs 2.3 Lakh Crore.

(4)Provide Boost in demand for steel,


Cement Etc.

The Initiative taken by Government will give fillip in growth of Mining Industry and demand for
certain Minerals. The demand of Minerals can further be strengthened in Domestic as well as
export market through following proposed measures.
Proposed Measures
Implication
(1) Setting of Special Cell to gather data on
(i)
The special Cell will work on
Subsidies given by other countries to
proposed measures including
their Mining Industry.
change in Custom Act.
(ii)
The information gathered will help
to impose duty on subsidized
imports and protect Local Mining
industry.
(2) Development of Barter System as
(i)
Under this system, the Non Captive
existing during ancient period.
Miners will provide Raw Material
to manufacturing industry and in

(3) Analysis on Export Duty, Import duty


and anti-Dumping Duty.

(4) ) Reduction in Export duty of Iron Ore


Fines with grade below 58% from 10%
to Zero.

(i)

turn they will provide finished


products required by Non captive
Miners in daily usage or Joint
agreement between Mineral
Industry, Manufacturing industry
and Spares, Accessories & HEMM
equipment provider Industry.
Large quantities of Fines (Low
Grade) accumulated during
processing of Iron Ore shall either
be consumed or to Exported. The
export shall be encouraged through
reduction in Export Duty as they
can cause Environmental Hazards.
The deposits in India such as Goa
are predominantly of Low Grade.
Such ore best suited for overseas
market, which use the ore for
blending with Higher grade ores.

Control of Social Unrest problem:


In India most of the deposits are located in tribal & forest area. Rising levels of public
opposition and social conflicts are inflicting operations of Mining industry in India. The mining
industry in India has however has started to shape the future direction of this engagement
towards an inclusive agenda. There is no doubt that mining investment are providing livelihoods
of the local people, bringing in much needed investment job and government revenues. Severe,
rapid disruptions to local life generate fear and mistrust. The public trust deficit needs to be
addressed by both industry and government alike.
That mining companies, given the nature of their business (operations in backward / remote
Regions and need for social license to operate), are investing in helping local community by
Building schools, healthcare facilities, etc.
There is No doubt that creation of District Mineral Foundation (DMF) through MMDR Act,
2015 will help in Reduction in feeling of Resentment & Distrust among Local people towards
the Mining operation, as the fund will be utilized for safeguarding interest of Local people. This
will reduce provocative attitude and will foster sanguine thinking among Local people that their
development take place only when their sustainable production due to Mining. The Social
problem can further be apprehended through following proposed system.
Particulars(propose Observation & analysis
d system)

Enforcing
equivalent Tax
regime instead of
announcing
Flexible standard

(1)For growth to go forward, it must be environmentally


and socially concordant.
(2) The Launch of Sustainable development goal and
agreement in Paris during cop-21 meet, we can no
longer achieve our economic ambition by endangering
our environment & society.
(3)Welfare economics calls for enforcing equivalent
taxes rather than just announcing Flexible Standards.

Reforms in Labour Laws: India has too many antiquated Labour Laws
which hamper growth and investment. The need of hour is for elegant laws that will make easy
for company to hire and pay whatever salaries they can get away with. Once such laws are in
place, foreign investment will flood into Mineral industry.
Existing process of (1)Practice of Hiring temporary workers through Contractors
Hiring
Contract
Labours
(1)Make it impossible to form a truly independent trade Union.
(2) Make it Legal to keep temporary workers permanently Temporary
Proposed
New (3)A regime shall be formulated in such a way this temporary workers will
regime
work for 06-12 Months. Then he can be laid off for 05-06 Months and may be
recalled for another 06-12 months. This model will prevent unity between
permanent and temporary workers by regularly churning the latter.
Since independence, trade unions in India have mostly fought modest battles for outcomes such
as higher wages and better working condition. But this changed in 1990.After Liberalization,
most strikes by workers have been not for Wage hikes but for Right to Form a Union. The Right
to Collective Bargaining is enshrined in our constitution under Article19 (1) which grant all
citizens the Right to form a union. We have Contract Labour (Regulation & Abolition) Act, 1970
that prohibits employment of Contract workers for core Industrial work.

Conclusion:
(1)Government needs to follow up with policies .That includes providing Custom duty and
export incentives, tax rationalization and removal of ambiguous land acquisition policies.
(2)Domestic challenges faced by Mining industry in terms of Export are Slowdown in
Manufacturing and High logistic Cost.so development of waterways is the need of Hour.

(3)Though a Lot has been said about the ease of Doing Business in India, there needs to be more
tangible and visible action on the ground through greater policy changes to encourage more
investment in Mining sector.
(4)There is need for compiling comprehensive list of clearances & making it online for Mining
industry, which shall include clearance required to obtain from Central and State Government.
(5) The growth of aggregate demand in an economy is derived from four sources-private
consumption, private investment, Government Expenditure and Net exports. In current
circumstances, it seems that only engine of demand that can pull the Indian economy forward is
Government expenditure.
(6) Scrapping of 10 % Export tax levied on Low grade Iron Ore in view of falling global prices
and lack of demand for such ore among domestic producers will give fillip to Mining Industry.