Effective regulations and coherent policy essential for mining sector

Deletion of Section 10A(2)(b) and (2)(c) is being recommended. Unfortunately, these proposed changes will not result in a significant boost to the sector, if the underlying problems remain unaddressed.
Kickstarting the economy is fortunately back on the agenda and from the various government statements it appears that mining, specifically mineral exploration, is about to see significant action. The Prime Minister has tasked officials with benchmarking the sector to international standards and major policy changes are being proposed. Statements alluding to ramping up mining auctions are also doing the rounds.

The challenge for the sector actually lies at the very first stage of the mining cycle — in India’s mining exploration policy and implementation. Recall that the Mines and Minerals (Development and Regulation) Act, 2015 was in response to the Supreme Court’s concerns on transparency in granting licenses. Auctions of mining licences were the identified solution instead of the first-cum-first-served rule. The responsibility for exploration was also shifted to the public sector. Moreover, those who had already conducted exploration but not yet received licences were allowed preferential rights for prospecting and mining under Section 10A(2)(b) of the Act, but that remained only on paper.

Industry sources mention (hard data not being published) that several proposals covered under Section 10A(2)(b), for grant of concessions, have actually been pending in the ministry for more than five years. It is unclear why, despite a facilitative policy framework, approvals have been delayed for these cases where a significant amount of exploration has already occurred. Neither did the auction mechanism work well enough; according to latest reports, barely 95 leases have been auctioned since 2015.

The Ministry of Mines is now proposing a major shift in policy that can bring more than 700 mineral blocks into the auction mandate. Deletion of Section 10A(2)(b) and (2)(c) is being recommended. Unfortunately, these proposed changes will not result in a significant boost to the sector, if the underlying problems remain unaddressed.

Two problems have occurred.  First, poor capacities within the public sector led to a lack of adequate exploration, leading to suboptimal auction outcomes. Second, proposals under 10A(2)(b) of the MMDR have been languishing with no explicit reasons being made public; it is likely that fear of later investigations are making the bureaucrats wary of taking decisions. The government has now proposed to do away with the clause in the false belief that auctions will take care of the bureaucrats’ fear of liability. However, note that auctions have not been very effective over the last few years due to weakness in exploration.
The solution, therefore, has five main asks.

First, exploration needs the right incentives. The standard global practice is for private entities to use venture capital, bear the risk of exploration, and then sell mineral concessions to bigger miners. In India, auctions can be used for exploration and mining rights for surficial minerals as these have been fully mapped. But for deep-seated minerals, of which only 26 per cent potential had been mapped till 2018, a transparent online system with simple and transparent provisions will be key to attract private investment in exploration. This is a necessary yet not sufficient condition for growth in the mining sector. The next few asks are crucial.

Second, the bureaucratic freeze has been well documented in recent years and appears to be worsening with time. Investigations into wrongdoing are natural, but the consequences of not taking decisions are far-reaching. A committee-based decision-making can easily solve the bureaucrat’s liability problem along with rewarding timely action and punishing unnecessary delays.

Third, judicial decisions have caused significant hindrance. Using the first principles of natural law as the primary criterion does not necessarily lead to economically sensible decisions. There are two solutions: a) plug the multiple interpretations of laws restraining the mining companies and avoiding strict judicial pronouncements, and b) a special bench of the Supreme Court should settle any mining-related matter, quickly and in a time-bound manner.

Fourth, multiplicity of rules/orders confound investment, with continuously changing guidelines that are reactive rather than based on any coherent logic. A comprehensive and updated checklist of mining guidelines online, should be circulated, with changes made through one source once or twice a year. The Ministry of Mines needs to coordinate between different agencies to ensure clarity, and take it towards the next level of single-window-clearance.

Fifth, state governments lack the capacity to undertake all pre-auction steps in time. Completion of pending applications calls for greater involvement of agencies like Geological Survey of India, Mineral Exploration Corporation. Institutional capacity needs to be ramped up in these agencies to ensure timely completion of preparatory work such as surveys, land schedules, pre-feasibility assessments, fixing reserve price, and preparation of bidding documents.

And finally, mining is a critical sector for the economy. It can create great value-add, and significantly raise incomes at the bottom of the pyramid. However, without effective regulation, it can cause massive environmental damage. This requires coherent policy that addresses the core issues. Without this, better miners with improved technologies, international good practices for lesser environmental footprints will be less likely to enter.



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