Foreign capital outgo exceeds FDI inflows in the mining sector

The flight of foreign capital in mining sector has outweighed the inbound FDI (Foreign Direct Investment) flows. 

Though FDI is permitted in the  mining sector since February 2000, its flow has been intermittent over the last few years. From $592  million in 2010-11, FDI in mining has subsided by more than half to $247 million at the end of 2018-19. 

Predicating its findings on FDI inflow figures of  the Reserve Bank of India (RBI) and outflow data collated by Cassels & Graydon LLP and EY, the Federation of Indian Mineral Industries (Fimi) in its study titled 'Indian Mining: A Synopsis'  noted that Indian capital in mining is moving out of the country to foreign locations, creating employment opportunities and socio-economic development there. By contrast, the domestic mining sector is languishing with substantive job losses precipitated by intermittent closure of mines. Production has also got a jolt due to shutdown of mines in the key producing states of Odisha, Karnataka and Goa. For instance, Goa, a producer of baser grade, inferior quality iron ore witnessed the complete shutdown of 88 mines after a Supreme Court order in February 2018.

On a comparative plane, outgo of domestic  capital trumps the incoming FDI many times over. Between 2010 and 2014, the country received $889 million of FDI inflows in mining. Against this figure, the capital outgo in the comparable period stood at $3200 million with 22 deals struck in Australia, Indonesia and Africa. The same lopsided trend was seen in calendar 2015 as FDI inflow of $129 million paled into insignificance compared to the capital outflow of $721 million with 25 global deals clinched.

India is losing out on FDI investments due to  frequent bans on mining and implementation of Acts and Rules that have proved to be counterproductive to investments. 

“The overall ecosystem has proved to be repulsive to foreign investors who have exited India. It has also pushed the country out of the league of mining destinations of the world. The situation is manifest in India's ranking in Mining Attractiveness at the Fraser Institute's Annual Survey of mining companies based on policy perception and mineral potential”, said an industry source.

India ranked 73 amongst 109 countries or mining jurisdictions surveyed by Canada-based Fraser Institute in calendar 2015. The ranking slumped to 97 in the list of 109 countries  in 2016. India dropped out of the survey in 2017 and 2018.

Steep taxes on mining have robbed India of its competitive advantage. Mining continues to be the most taxed industry anywhere in the world with a cocktail of levies like royalty, Goods & Service Tax (GST) and contributions by mine lessees to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET).

The Effective Tax Rate (ETR) on mining in the country ranges from  54-58 per cent. This is far steeper than Mongolia (31.3 per cent), Chile (37.6 per cent), Australia (39.7 per cent), South Africa (39.7 per cent) and Namibia (44.2 per cent).

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