Policy prescription for breaking stagnation in mining

Despite the country's bountiful resources of coal, iron ore, bauxite and many other minerals, their production, for a variety of reasons, remains uninspiring. For example, India's coal production during 2012-13 rising 3.2 per cent to 557.5 million tonnes (mt) was way short of requirements of the power and other sectors. This led us to import 110-115 mt of thermal coal. As for metallurgical coal used in blast furnaces, our imports advanced to 28.29 mt. Growing coking coal imports are in step with rising steel production since neither our resources nor their quality is anything to write home about. But the government with its overarching presence in the coal sector has much to answer for our growing imports of thermal coal, since, of the total 277 billion tonnes (bt) of resources, the share of non-coking coal is as much as 242 bt.

We also have not been able to derive benefits commensurate with our iron ore and bauxite resources. Studies by expert groups hold inadequate spending on exploration and lack of thrust in converting indicated and inferred resources into proved reserves responsible for less-than-desirable rates of growth in production of a wide range of minerals. That we are not particularly active in exploration, which finally has a bearing on mining sector activity, is revealed in a report saying that Indian spend of $9 per sq km compares poorly with that of Australia's $124 and Canada's $118. Our resource base will significantly expand provided our exploration work does not remain restricted to a depth of up to 100 metres. In the more developed mining nations, exploration goes as deep as 300 metres. A strategy paper for the ministry of mines says capital expenditure CAGR for the Indian mining sector during 2001-08 was seven per cent against 29 per cent for Chile, 28 per cent for China and 23 per cent for Australia.

No wonder then, its potential notwithstanding, the Indian mining sector's contribution to gross domestic product (GDP) remains low at about 2.6 per cent. In contrast, the sector has a share of six per cent in GDP of Australia and Chile. China is opening new mines and expanding the working ones at a relentless speed to secure growing degrees of self-reliance in iron ore and bauxite in particular. As a result, the Chinese mining sector's contribution to GDP since 2000 rose from 1.1 per cent to over three per cent in 2011. In contrast, as the 2012-13 Economic Survey points out, for six quarters in a row till the third quarter of 2012-13, the Indian mining sector had shrunk. Foreign direct investment inflows into mining and mining services have remained disturbingly low. The country has not seen the opening of a major bauxite mine in nearly three decades. What follows is very low employment of less than half a per cent of our population in the mining sector.

There is a wake-up call for the government in the strategy paper. It says, "Unlocking the potential of the mining sector in India could add around $210 billion to $250 billion... or six to seven per cent to GDP and create 13-15 million jobs through direct and indirect contribution by 2025." Minerals are found in sparsely populated areas where the only chance of enjoying the fruits of development for indigenous people lies in the opening of mines. It takes inordinately long time to perform the host of rigorous formalities before applicants stand a chance to get mining leases. But the local inhabitants will still be laying siege to new mining activities till they and their NGO backers are convinced that ore extraction will lead to sustainable economic development but without damaging the environment. Indian groups seeking access to mineral deposits will do well to follow the Australian practice of first taking local communities in confidence before going through the process of opening mines.

In the 2011 Fraser survey of mining policies, India ranks quite low. It could not have been otherwise, for it could take up to eight years to secure mining leases here. How is that the same process is completed in Australia in a year. Single-window clearances and online applications underpinning transparency as practised in Australia are seen as the model for other established and emerging mining nations to practise. No doubt, when our own Mines and Minerals Development and Regulation Bill was written, some of the things practised in Australia, leading to quick disposal of mine lease applications, must have caught the fancy of its authors. For example, the Bill proposes current application disposal time cut by half and assured transfer of prospecting licences and mining leases on the lines of what obtains in Australia. India has been rocked more than once for favours allegedly shown in coal block allocations. Exercise of discretion by politicians in mineral deposit allocations leaves scope for corruption.

By putting on auction prospecting licences and mining leases, this could be plugged. A more intelligent and investor-friendly policy will break stagnation in mining provided the government simultaneously puts in place core enablers like infrastructure and an adequately large bank of geoscientists and mining engineers. A study puts annual mining sector losses at over $2 billion due to infrastructure deficiencies.