In today’s Finshots, we talk about new mining reforms which could be a big push to the mining industry.

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The Story

India has ambitious goals. By 2030 we want EVs to make up at least a third of private vehicles on the road; we want 65% of our energy requirements to be met by renewable energy such as solar and wind  And to achieve these goals, we first need a whole boatload of batteries. The lithium-ion kind that power EVs and also serve as grids to store renewable energy.

But here’s the thing. At the moment, we’re heavily dependent on importing these batteries. Over 95% of the lithium-ion batteries make their way into the country from China and Hong Kong. And it doesn’t come cheap. So we need to achieve some form of self-reliance to help our cause.

And the good news is that we seem to be heading that way. Remember the big news from February this year? We discovered massive reserves of lithium in Jammu and Kashmir. And the whispers began — if we could mine just 10% of it, it could be enough lithium to power 6 crore EVs in India. It was a jackpot.

But as with most good things in life, we need to clear some hurdles to get there.

For starters, ever since we first formulated the Mines and Minerals Act after independence, we limited the private sector's involvement. We barred them from mining critical minerals and metals like lithium and nickel, deeming these too vital for national security to entrust to private hands. This limitation impeded progress. With just a handful of state-owned enterprises with the technical expertise for mining, we were quite restricted. Exploration and mining activities were slow.

So in the past year, the government has been tweaking rules in a hurry.

Firstly, they opened up the critical minerals segment to the private sector. They decided that with the money and resources that private mining companies had, it made sense to get them to participate in the process.

They also decided to speed up the auctioning of mines. How, you ask?

Well, the central government’s complaint was that the states in charge of auctions were too slow. They hadn’t conducted proper mining auctions in over 4 years.  So the central government took matters into their own hands and decided to conduct auctions themselves. Maybe this would convince private companies that the government was serious about the whole business.

Secondly, they also decided to hand out composite licences for the cause. You see, mining licences were typically issued in two parts. If you want to first explore and identify worthwhile deposits, you’d need an exploration licence. And then, if you wanted to mine what you discovered, you needed to obtain another license for production. It wasn’t attractive for companies because they'd have to deal with severe financial consequences if they spent time and money finding the deposits, but then were denied the license to explore. But a composite licence allows for both activities. And the government thinks that will be attractive for the private sector.

Thirdly, the government addressed mining royalties. Historically, India has had one of the highest royalty rates globally, primarily because state governments saw this as a revenue source. These high charges discouraged miners. For perspective, an annual survey by the Fraser Institute that ranked countries based on their mining policies consistently rated India poorly. In 2017, India was even excluded from the list.

So if we were opening up to the private sector, we needed to ensure the rates were competitive. We looked at how other countries charged royalties. We figured that in Australia, companies paid a mining royalty that amounted to 3% of lithium’s quoted price on the London Metal Exchange. And in Argentina, Bolivia, and Chile (the lithium triangle), it was 4.5%. So this time, instead of being on the pricier side, we went low — we’ve fixed it at 3% for lithium and niobium. And kept it at just 1% for other rare earth elements.

So yeah, putting all these amendments together could be quite a gamechanger. We might see both Indian and foreign mining companies rush to participate. Some estimates also suggest that the contribution of the mining industry could jump from just 1.75% of the GDP to 2.5% over the next five years. Not to forget the millions of jobs these activities could create too.

Will all this help India’s mining industry flourish? Can we achieve self-reliance in minerals to aid our energy transition? What do you think?

Until then…

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