In today's Finshots we talk about the new amendments in the mining sector


The Story

We have a lot of mineral deposits and yet we’ve not fully realised their full potential. One report states that the mining industry’s contribution (excluding petroleum and natural gas) to India’s GDP could be around 1.63% (based on data from 2018–2019). And that’s not a lot. It could easily be 2–3% higher if only we found ways to unlock our true potential.

But what’s holding us back?

Well, think coal, for instance. India is the world’s second-largest producer of coal. Unfortunately, 80% of all coal produced in India can be attributed to the state-run enterprise Coal India. And while you would think that that is an achievement in itself, the company’s virtual monopoly status is a byproduct of government intervention. We’ve simply not let private players participate in the mining story for a while now. And even when we let private players in, we impose restrictions that effectively relegate them to fringe status.

Which means that the country has always been overly reliant on the likes of Coal India. And Coal India hasn’t exactly been a stellar performer. They’ve consistently failed to meet production targets and it’s a feature you’ll see with other public sector undertakings too. Bottom line — We’ve not been able to reach our true potential because we haven’t made it easy for private players to participate in the mining domain. So the government has finally decided to introduce new amendments that would likely change this once and forever.

First, the government has decided to do away with the distinction between captive and merchant mines. Think of it this way. Captive mines are auctioned off to those entities who promise to use the minerals for a specific use case. So if you were a steel manufacturer, you could get yourself a captive iron ore mine and use it to produce steel. However, you couldn’t sell the iron ore in the open market. But with the new amendments, you can sell 50% of your produce in the open market, so long as you aren’t dabbling with atomic minerals. The hope is that this will attract more players to bid for mineral blocks as they will now have the freedom to use their output in a way they see fit.

Then there is also the plan to bring unused mineral blocks back from the dead. If you have a mine that hasn't been utilized in 2–3 years, then they could be put on the auction block once again. Also, if a state government fails to auction off a block within a specified time frame, then the centre can assume control and auction it off themselves. And to make sure new private players entering the fray don’t sit on a license, the government has mandated them to start production within 2 years of having obtained the license. All in all, the government hopes to make several mines functional in a short period of time and generate as much employment as they can.

Finally, there is the bit surrounding exploration. If you are thinking about mining in India, you might have to spend a fair bit of money trying to identify rich mineral deposits. This process is called exploration. Until now, the government extended an exploration license only to find these deposits. However, if you wanted to mine what you found, you had to obtain a separate license. This meant companies were always tentative about investing their time and money in such an endeavour considering there was always the threat of not getting your hands on a production license. But with the new amendments, companies can seamlessly transition from exploration to production.

So yeah, there are a bunch of new developments in the space and hopefully, this breathes new life into the sector.

Until then…

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