Significance of Mining sector:
- The mining sector has potential to create millions of jobs as well as save billions of dollars of forex.
- However, this crucial sector is afflicted with many issues that have prevented it from growing fast.
- However, the government has finally started making some attempt to fix things.
India is rich in minerals but poor in extraction:
- A Niti Aayog paper noted that India’s prospective geology is broadly similar to that of Western Australia, especially in relation to iron ore, bauxite, coal, diamonds and heavy mineral sand.
- Of the area identified as one with “obvious geological potential” (that is, rich in minerals), Western Australia has explored 95%.
- In comparision, only 10% of such area has been explored in India, while a miniscule 1.5% is presently being mined.
- India’s imports of minerals are roughly seven times as high as the domestic output, reflecting the poor level of exploration and production.
- According to Niti Aayog, even doubling the area explored to 20% of “obvious geological potential” can create an additional 5 million jobs by 2022-23, from the current 10 million.
Improvements – Oil & Gas sector
Recent reforms in Exploration and Licensing Policy for Oil and Gas:
- In February, the union cabinet approved has approved the Policy framework on reforms in exploration and licensing sector for enhancing domestic exploration and production of oil and gas.
- The policy reforms focus on four major areas:
- Increase exploration activities in unexpected areas
- Incentivize enhanced gas production for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved
- Enhance production from existing nomination fields of ONGC and OIL
- Promote ease of doing business
Represents a step forward:
- The new oil and gas Policy framework resolved many outstanding issues in the sector.
- The package could have been more generous, but it was nonetheless an important step forward.
- For example, instead of allowing market prices for only gas produced from new discoveries, it could have even been allowed for producing fields (since more profits for oilcos will incentivise them to explore more).
Improvements – exploration and extraction of other minerals
National Mineral Policy 2019 with much needed improvements
- Recently, the Union Cabinet has approved the National Mineral Policy 2019 to replace the extant National Mineral Policy 2008.
- It is aimed at bringing about more effective regulation and more sustainable approach to mining sector development in future.
- The new policy makes some important improvements compared to the current policy.
- Right of First Refusal for those who discover minerals:
- Earlier, if a firm that has a reconnaissance permit (RP) finds evidence of minerals, it has to inform the government. The government then auctions off the area. This was not an exciting option for explorers.
- As per the new policy, firms with reconnaissance permit (RP) and prospecting license (PL) will get the right of first refusal to mine them if they discover minerals.
- Auctioning in virgin areas:
- Firms will be allowed to give the government the coordinates of the area they would like to mine in, and this will then be put up for auction in a short period of time. This is similar to the open acreage policy in the oil and gas sector.
- Harmonizing taxes, levies & royalty with world benchmarks:
- The new policy also promises to harmonise taxes and various levies in keeping with global benchmarks.
- This is important because, as compared to 8-12% levels globally, Indian levies on most non-oil minerals works out to around 30% of top-line revenues.
- In other words, high levies make exploration of minerals uncompetitive.
- Rationalizing reserved areas given to PSUs:
- PSUs often have a lot of good acreage (with good mineral prospects) that they may not necessarily be exploiting.
- India’s largest imports of minerals, including oil, take place in sectors dominated by PSUs.
- ONGC, for instance, has some of the best acreages in the country but its crude oil production fell from 25.9 million tonnes in FY08 to 22.2 million in FY17 while that of Cairn, a private sector company, rose from 2.6 million tonnes to 9.4 million tonnes.
- The new policy says these acreages will be auctioned off to the private sector.
More reforms needed:
- Sorting out delays in permissions:
- Along with getting the policy right, it is also critical to fix the implementation, such as the delays in getting permission.
- Possible fixes:
- Deemed approval in case of delays:
- Niti Aayog has recommended that all statutory approvals should mandatorily be granted within a period of 180 days.
- If this is not given, a provision for a deemed-to-have-been-given approval must be put in place by amending the the law.
- Empowering forest officers:
- Niti Aayog also suggests that local forest officers may be empowered to grant permission under the forests law for exploration in forest areas.
- This is critical since environmental clearances take up to even 390 days to get.
- Deemed approval in case of delays:
- Quality controls:
- It is also important to do more stringent 24×7 checks on the quality of mining. One way is through the use of drones and satellite imagery.
- This will endure that the local communities do not feel their lands are being destroyed by mining companies and valuable forest cover removed.
- Using District Mineral Foundation fund:
- The Mines and Mineral (Development and Regulation) Act, 1957, as amended in 2015, provides for the establishment of District Mineral Foundation (DMF) in any district affected by mining related operations.
- Every mining lease holder of will pay a fraction of royalty to the fund. This fund will be used for welfare of the people affected in the mining affected areas.
- However, it is not being utilized fully. For example, in 2018, less than 25% of the fund has been spent.
- Using CAMPA funds:
- The Supreme Court in 2018 pulled up the government for not spending Rs. 90,000 crore of the Compensatory Afforestation Fund Management and Planning Authority (CAMPA) fund.
- If enough forestry is done on time utlizing the funds, the local population would be less averse to fresh mining.
- With mineral imports comprising around 55% of imports, and India’s current account deficit so big, it is important to fix this sector.
- This will enable India to monetise the country’s mineral assets, save forex as well as generate millions of jobs.
- The benefits of the recent reforms will reap rewards over the next many years.
GS Paper III: Economy