The mining sector, in many countries, has been resilient despite the global financial crisis, and has contributed substantially towards the recovery of their economies. Can India now follow the footsteps of other countries? Explores ICR cover story.
Exploration of minerals must keep pace with the growth of the industry but India's story is completely different. As is the case globally, there are challenges in bringing the mineral resources to market, but these are surmountable. For decades, the story of India's mining industry has been one of vast potential that is yet to be truly unlocked.
India shares a geological history with resource-rich regions that is comparable to South America, Canada, Australia and South Africa. Jharkhand, Odisha, Rajasthan, Madhya Pradesh and Bihar can be regarded as major contributing mining States, yet its domestic mining industry has struggled to achieve momentum. In the last decade or so, mining contribution to India's GDP fell from 1.2 per cent to 1 per cent as on December 2014, a report by McKinsey & Company suggested.
Given the present globally competitive environment, the mining industry must work on new financial strategies, aggressive exploration development programmes, investment-friendly policies and regulatory framework, value addition of minerals and the use of productivity enhancing techniques. The domestic mining industry is facing a galore of challenges when it comes to mineral exploration. It has further led to a severe lack of participation from the private sector and lack of investment, with a large majority of exploration work carried out by public sector companies.
H Noor Ahmed, Ex President, the Federation of Indian Mineral Industries (FIMI), states that India's figures is nowhere in the global exploration budget. He says, 'When Canada makes up 14 per cent of the global exploration spend and Australia sits just behind at 12 per cent, India is languishing at just 0.4 per cent. India's exploration expenditure works out at just $17 per square km, comparing unfavourably with China's $67 and Brazil's $51, and not to mention the much higher figures in Chile, Australia and North America.'
Amending the MMDR Act
As our Chairman, Editorial Advisory Board, Sumit Banerjee rightly says ôIt is a work still in progress.' (Refer the editorial column of the current issue) The Act replaces India's discretionary licensing and approvals system, which was highly vulnerable to corruption at various levels, with a competitive bidding system.
Mining lease periods have been standardised to 50 years in an effort to ensure security for investors. While implementing various provisions to expedite the decision-making process, which could potentially, allow the reopening of mines that had closed while waiting for lease renewal decisions from the Government.
The Act also makes provisions for the creation of the National Mineral Exploration Trust (NMET) to encourage exploration, and the establishment of District Mineral Foundations (DMFs), regional bodies, which will take a third of local mining royalties to spread benefits to people and environments in mining-affected areas. Tackling corruption and environmental concerns, while auctions are currently ongoing for dozens of mines across the country, the prospects appear to be looking up. The biggest of these problems is corruption, which was allowed to flourish under the old discretionary permitting system.
We have been repeatedly saying that the vast mineral potential possessed by our country remains highly underutilised. The investment decisions are based on the potential of the mineral and policy perception. There is something called 'Fraser's annual policy perception index.' A composition of survey responses to policy factors that affect investment decisions ranks India at 81 out of 109 mining provinces surveyed in 2015. It has to certainly change if we want to attract investment in mining.
In July 2016, the Indian Government has continued to take steps to transform the Indian mining sector. A well-drafted New Mineral Exploration Policy (NMEP) with robust execution can improve India's ranking in the policy perception index and become an attractive destination for mineral exploration.
In India, exploration activity so far has been carried out largely by the State-run Geological Survey of India (GSI) and Mineral Exploration Corp Ltd (MECL). NMEP envisages increased involvement of GSI. State-run companies can form joint ventures with private companies to undertake exploration projects. NMEP recognises the need to incentivise private sector participation and has various provisions for that. For example, revenue sharing with private explorers in case exploration efforts lead to auction able resources and cost reimbursement to explorers if the exploration agency is unsuccessful in discovering any economic reserves.
Private sector, the largest contributor
All across the globe, exploration is largely funded by private players as they have the technology and the expertise to carry out such a risky and capital-intensive activities. In 2015, private enterprises accounted for more than 90 per cent of the global exploration budget, whereas Government and other institutions accounted for only around 8.8 per cent of the budget.
FDI in mining
During most of the last decade, FDI inflow into the Indian mining industry has been much lower compared to other sectors such as telecommunications, power, machinery and transport equipment. This is despite the Government allowing 100 per cent FDI in the mining sector under the automatic FDI route. FDI in mining increased sharply in the recent past few years, from a very low base. Despite this significant rise, it is still only around 0.8 per cent of the total FDI. Furthermore, the news of Rio Tinto exiting the Bunder diamond project, since it did not reportedly get timely permits for concessions and environment approvals, may again hurt sentiments of foreign investors.
Accessibility of geological data
The Government will make available pre-competitive baseline geoscience data for open dissemination free of charge, since it has now also obtained relaxation in restrictions from the Ministry of Defence (MoD) on sharing of data. This data will be continuously updated and benchmarked with those of other leading countries like Australia. The Government will implement a National Aero-geophysical programme to acquire state-of-the-art baseline data for targeting concealed mineral deposits.
NMEP has proposed to set up a National Geoscientific Data Repository (NGDR) to collate all baseline and mineral exploration information generated by various Central and State Government agencies as well as mineral concession holders to maintain these on geospatial database. There is one flipside of the story, India ranks low in the quality of its geological database, which includes quality and scale of maps, ease-of-access to information. One of the reasons could be that the information so far was non-digitised and was not available freely in the public domain. Moreover, most of the exploration in the country has so far been near the surface (50 to 100 m) with little or no information on deep-seated minerals. However, geological mapping needs to be updated on a continuous basis, since technology advancement in geophysical surveys are likely to make older reports look insufficient or sub-standard. The real test of these reports will come once exploration companies bid for permits on the basis of these reports.
We need more focused attention in this area. Today; the outsourcing of services in the mining industry is done in a very fragmented way, which needs a complete overhaul. The outsourcing is primarily limited to either labour or equipment. But no other service is attempted to be outsourced. Ideally what should happen is entire job of operations of mine should be left to a professional company, which will improve the efficiencies of operations. However there are issues mainly that of safety which many experts feel may be compromised since the present regulation will not be effective in addressing the concern. However the contractual mining is yet to take off in our country. We expect many more developments to come in the coming years.
The Ministry of Environment and Forests is considering a proposal to relax regulations for forest clearing for exploration, allowing automatic approval if the tree canopy covers less than 40 per cent of the affected area. Canopy coverage of 40 to 70 per cent will require a permit, and areas with more than 70 per cent coverage would automatically be disqualified from consideration. The hard limits will once again be helpful for companies that need better understanding of their regulatory obligations, but with more than 250,000 ha of forest already threatened by coal mining operations alone according to a recent report by Dutch environmental group Fern, a more relaxed stance to forest conservation could have an unforeseen knock-on effect for jungle habitats.
The Government has plans to intensify geochemical mapping (target to cover entire OGP [Obvious Geological Potential] by 2018û19) and geophysical mapping (target to cover entire OGP by 2020û21), which are important milestones for exploration of minerals.
Only after a few years, we will be assess whether the country is heading towards the right direction or not. Let us wait and watch.
Source: Ernst & Young LLP India Report