TOPIC: AN ANALYSIS OF INDIA’S MINING POLICY SHIFT

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THE CONTEXT: Recently the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 was passed by the Parliament, in a bid to attract private sector investment in the exploration of critical and deep-seated minerals in the country. This article analyses this recent policy shift in India’s mineral sector from the UPSC CSE perspective.

WHAT ARE THE AMENDMENTS TO THE MMDR ACT, 1957?

The Mines and Minerals (Development and Regulation) Amendment Bill, 2023 amends the Mines and Minerals (Development and Regulation) Act, 1957 which currently regulates the mining sector.

INCLUSION OF SUB-SURFACE ACTIVITIES IN RECONNAISSANCE

• The MMDR Act currently defines reconnaissance as preliminary prospecting, encompassing aerial surveys, geophysical, and geochemical surveys, and geological mapping.
• The Mines and Minerals Bill, of 2023, expands reconnaissance to include activities like pitting, trenching, drilling, and sub-surface excavation that were previously prohibited.

INTRODUCTION OF EXPLORATION LICENSE (EL)

• The MMDR Act provides permits for reconnaissance, prospecting, mining leases, and composite licenses.
• The Amendment Bill introduces the concept of an exploration license, allowing reconnaissance or prospecting, or both, for specified minerals.
• This license covers 29 minerals listed in the Seventh Schedule, which includes precious metals like gold, silver, base metals like copper and nickel, and even atomic minerals.

DECLASSIFICATION OF ATOMIC MINERALS

• Six atomic minerals, previously restricted to government entities, are declassified as atomic minerals under the Bill.
• These minerals are beryl, beryllium, lithium, niobium, titanium, tantalum, and zirconium can now be explored and prospected by private players as well.

EXPLORATION LICENSE VALIDITY AND AREA

• The exploration license is issued for five years, extendable by two years upon application.
• Activities under a single exploration license can be conducted within an area of up to 1,000 square kilometers.
• After the initial three years, up to 25 percent of the originally authorized area can be retained by the licensee.

AUCTION MECHANISM FOR EXPLORATION LICENSES

• Exploration licenses will be granted through competitive bidding by state governments.
• The federal government will define the auction framework, rules, terms, and bidding parameters.

GEOLOGICAL REPORTS AND INCENTIVES

• The licensee must submit a geological report within three months of exploration completion or license expiration. If proven resources are found, the state government must conduct an auction for a mining lease within six months of the report.
• The licensee is entitled to a share in the auction value of the mining lease for the prospected mineral, with the share defined by the central government.

FEDERAL GOVERNMENT-LED AUCTIONS FOR CRITICAL AND STRATEGIC MINERALS

• The federal government will conduct auctions for composite licenses and mining leases of specified critical and strategic minerals, including lithium, cobalt, nickel, phosphate, potash, and tin.
• However, the state government will continue to grant concessions.

MINES AND MINERALS (REGULATION AND DEVELOPMENT) ACT (1957)

The MMDR Act 1957, the primary legislation governing mining in the country has been amended several times since its enactment including recently in 2015, 2016, 2020, and 2021.

Mines and Minerals (Regulation and Development) Act (1957):

• It is an act of the Parliament of India enacted to regulate the mining sector in India.
• This act is applicable to all minerals except minor minerals and atomic minerals.
• It details the process and conditions for acquiring a mining or prospecting licence in India. Mining minor minerals come under the purview of state governments.

Previous Amendments:

• The MMDR Act, 1957 was comprehensively amended in 2015 to bring several reforms in the mineral sector,

1. Mandating method of auction for grant of mineral concessions to bring transparency in allocation of mineral resources

2. For establishing District Mineral Foundation (DMF) for the welfare of the people and areas affected by mining

3. For establishing National Mineral Exploration Trust (NMET) to give thrust to exploration and for ensuring stringent penalty for illegal mining.

• The Act was further amended in 2016 and 2020 to address specific emergent issues and was last amended in 2021 to bring further reforms in the sector, such as

1. Removing the distinction between captive and merchant mines

2. Transfer of statutory clearances to ensure continuity in mining operations even with change of lessee

3. Removing the restrictions on transfer of mineral concessions

4. Lapsing of rights of non-auctioned concession holders which have not resulted in mining leases to ensure that concessions to private sector are only granted through auction etc.

REASONS FOR THE AMENDMENT

TO SECURE SUPPLY CHAIN RESILIENCE

• Recent, Russian Ukraine war can be taken as a lesson that can affect global supply chains of critical minerals which is vulnerable to shocks leading to a lack of availability and skyrocketing prices.
• In this respect, there is need to have our own reserve of minerals to lessen impact of any global situation.

TO BOOST DOMESTIC PRODUCTION

• The Ministry of Mines, came out with a list of 30 minerals critical to the country’s economic development and national security. However, India is highly dependent on imports for a majority of minerals on this list.
• There is need to boost domestic production to reduce import dependency on country like china. Countries like the U.S., Australia, Japan, and the EU bloc have also created lists of critical minerals based on their specific economic needs.

UNTAPPED POTENTIAL OF INDIAN MINING SECTOR

• Notably, it is estimated that India has explored just 10% of its Obvious Geological Potential (OGP), less than 2% of which is mined and the country spends less than 1% of the global mineral exploration budget.
• Studies by organisations such as the Atomic Minerals Directorate for Exploration and Research and the Centre for Social and Economic Progress (CESP) note that India’s unique geological and tectonic setting is conducive to hosting potential mineral resources.

TO ENHANCE REQUIRED EXPERTISE

• Exploration requires techniques like aerial surveys, geological mapping, and geochemical analyses and is a highly specialised, time-intensive and monetarily risky operation with less than 1% of explored projects becoming commercially viable mines.
• In this respect, there is need for enhanced private participation for required expertise.

TO MEET CLEAN ENERGY DEMAND

• The clean energy transitions of countries including India, seeking to meet their net-zero emission goals, are contingent on the availability of critical minerals such as lithium.
• In this respect, there is need to have focus on critical minerals to fulfill India’s commitment towards energy transition and achieving net-zero emission by 2070.

 SIGNIFICANCE OF THE AMENDMENT

ACCELERATE THE PACE OF EXPLORATION

• According to a World Bank study, the demand for critical metals is expected to rise by nearly 500% by 2050.
• New Bill seeks to bring exploration processes in India at par with that of developed countries by getting private sector capacity into exploration, giving the example of Australia.
• This helps multiply exploration projects and accelerate the pace of exploration owing to private participation.

BOOST ECONOMY

• India’s mining industry forms a major part of the nation’s economy, both in terms of its own contribution to GDP and its supplying the raw materials that underpin India’s considerable manufacturing and infrastructure industries.
• Exploring this sector will helps in significantly boost the economy and national security in the country.

TACKLE THE HIGH RISKS AND COSTS

• Exploration for critical and deep-seated minerals demands specialized technical knowledge, advanced exploration techniques, and substantial financial investment.
• It aims to increase private sector participation which often possess the resources needed for these complex and high-risk operations. to tackle the high risks and costs associated with such projects.

COMPETITION AND EFFICIENCY

• Private sector participation introduces competition, which can drive efficiency and better allocation of resources. This can result in more cost-effective exploration processes.

REDUCED GOVERNMENT BURDEN

• Government agencies may not have the capacity to explore and develop all potential mineral resources.
• Private sector involvement relieves the government’s burden and allows them to focus on regulatory oversight and environmental management.

ISSUES IN THE AMENDMENT

REVENUE GENERATION MECHANISM

• Private companies’ revenue generation relies on a share of the premium paid by mining entities. However, this revenue realization is contingent upon successfully discovering a mine and subsequently auctioning it.
• The 2023 Amendment Bill mandates mining lease auctions within six months if mineral resources are proven post-exploration. This timeline may not align with historical trends, potentially leading to delays or even non-materialization of auctions due to clearance timelines and deposit complexities.

UNCERTAINTY IN REVENUE

• The lack of clarity in revenue prospects during exploration poses a significant challenge. Private explorers will not have a clear understanding of the revenue they will receive until the premium from a successful mine auction becomes known.
• This uncertainty might discourage private sector participation, as companies would prefer clearer revenue visibility during exploration.

CHALLENGES WITH AUCTION-BASED ALLOCATION

• Auctioning is more feasible when dealing with resources of known value, such as discovered mineral deposits.
• Auctioning unexplored resources is complex due to the inherent unpredictability in estimating the value of undiscovered mineral resources.

CAPITAL INVESTMENT ASSURANCE

• The 2023 Bill restricts private explorers from directly selling their discoveries, instead, allowing government auctioning. Private explorers are entitled only to a share of the premium at an unspecified stage.
• This differs from global best practices where private explorers have the option to directly sell their discoveries to mining entities, potentially affecting investment incentives.

NOT ENOUGH CONSULTATION

• Government has also been criticised for proceeding with such sweeping reforms to the mining industry with minimal consultation.
• Proposals were publicly released in late August 2020, with the notice from the Ministry of Mines inviting comments from the public, states and territories, industry, and other stakeholders  but the timeframe given for feedback was just 10 days which was a violation of India’s Pre-Legislative Consultation Policy.

OVERALL PROBLEMS IN MINING SECTOR

Mining sector plays significant role to meet the demands of GDP and economic growth of any country. Though India possesses promising geological conditions and the pathway to discover viable mineral reserves. However, mining sector is India is going through various challenges and disruptions that hamper its growth.

FORMALITIES AND LEGAL ISSUES

• The mining sector is subjected to different formalities and clearances that are required to continue operations conveniently.
• These also include legal obligations that make mining activities unviable and unprofitable.

ENVIRONMENTAL CONCERNS

• Various mines have to close down due to failure in meeting environmental compliances.
• Mining is not permitted in certain areas due to the possibility of adverse effects on the population and environment.

LACK OF MODERN TECHNOLOGY

• The mining sector suffers from the lack of modernized techniques for exploration and extraction.
• Most of the mines use old and inefficient machinery without making any progress toward the upgrade in technology.

ADMINISTRATIVE ISSUES

• The mining sector suffers from the problem of low asset and resource underutilization, especially under the control of public sector units.
• Moreover, the state governments are generally involved in the auction of mines and there may be ambiguities in political approaches between the center and state.

DISPLACEMENT OF COMMUNITIES

• Several mining zones are located in areas that are the natural habitat of tribes and rural communities. The displacement of these people is a matter of concern.
• Due to complexities related to the rehabilitation or compensation of these people, it becomes difficult to start the mining activities. Also, there are security threats in some mining belts from local people and agitators.

THE WAY FORWARD

• Diversification of funding sources: As Government agencies have limited budgets for mineral exploration. There is need to involve Private sector to diversifies funding sources which can reduce the financial burden on governments and allow for greater investment in exploration activities.
• Ensuring Transparency: For proper utilization of mineral resources there is need to ensure transparency in the use of the funds for sustainable development as there is less information on funds such as the Goa Mineral Ore Permanent Fund Trust and even the DMF in many states. India needs to adopt the Extractive Industries Transparency Initiative (EITI), the global standards of good governance ensuring transparency and accountability of the sector.
• Strengthen regulatory mechanism: Stringent regulatory mechanisms are required in the sector to mandate socio-economic rehabilitation and environmental restoration of mined-out areas, especially post-closure of mines and at the same time with proper implementation.
• More general reforms: There is need of more general reforms in the mining law to foster this competitiveness between public sector undertakings and private projects more broadly across the sector. At the same time there is need to encourage industry players to adopt sustainable technology solutions including green mining, coal ash ponds, and other newer technology vehicles that can further accelerate the productivity with the economy of scale and also better environmental performance.
• Global best practices: There is need to learn from global best practices and here Private companies can bring international best practices and experience to the exploration process, helping to align exploration activities with global standards and norms.

THE CONCLUSION: With series of reforms introduced, India is moving quickly with plans to revamp its mining sector by potential untapping mining sites that have been rendered inaccessible by existing regulatory frameworks. At the same time there is need to address the issue arising by proper stakeholder consultation to unlock its mineral potential, accelerate the pace of discovery, and ultimately contribute to the country’s economic growth and development.

MAINS QUESTIONS

Q.1 Discuss the problems being faced by the Mineral Sector in India? How can these problems be resolved with the help of Mines and Minerals (Development and Regulation) Amendment Bill, 2023? Explain.

Q.2 Investment and reforms in mining sector is essential for more rapid and inclusive economic growth. Give reasons in support of your answer.

UPSC PYQ ON MINING

Q.1 “In spite of adverse environmental impact, coal mining is still inevitable for development”. Discuss. (150 words) (GS 1 2017)

Q.2 Despite India being one of the countries of the Gondwanaland, its mining industry contributes much less to its Gross Domestic Product(GDP) in percentage. Discuss. (Answer in 150 words) (GS 1, 2021)