India’s Reforms are Killing Mining Industry

By Ajoy K Das
India’s purported big ticket mining sector reforms more than a decade ago of adopting auction as mandatory route for allocation of coal and non-coal mineral assets to investors is falling apart in terms of resource development projects in the country.

The mandatory auction route for allocating non-coal mineral assets was adopted in 2015 through amendments to Mines, Mineral Development and Regulation Act (MMDRA) 1957. The latest data available shows that of the 154 mineral blocks offered for bidding since then, only 101 blocks have been successfully auctioned over the last five years.

Worse, of the 52 greenfield blocks of the total 101 auctioned, not even one has been put into operation over the last five years. In the case of 14 operational mines, categorized as “C category mines, where mining leases were put up for fresh bidding in the southern Indian state of Karnataka, only seven have been brought into production over the years while the other seven mines are still awaiting receipt of all mandatory approvals from the government necessary to commence operations.

“The auction process has created artificial scarcity to the extent that miners are placing unsustainable high bids beyond 100% of the sale value of the mineral and any mine secured at a premium of more than 100% would inevitably make a loss,” according to the Federation of India Mineral Industries (FIMI), the apex representative body of miners, in an assessment report on current status of Indian mining industry post introduction of auctioning.

In its analysis, in the case of 103 noncoal mineral blocks auctioned, 102.87% of the estimated resources auctioned would go to the government as revenue, clearly indicating that the investor at the auction has a negative return on its investment. Hence, with Indian mining industry being the highest taxed in the world, high bids have increased the cost of production and rendered domestic mining operations uncompetitive vis-à-vis global industry benchmarks.

The adoption of auction in allocating mineral resources has also been a dampener for exploration of deep-seated minerals. While 2,754 mining leases for non-coal minerals were executed between 2006- 2010 and 494 mining leases between 2010-2014, most of which were greenfield, after introduction of auction regime post 2015, only 28 brownfield mining leases have been executed, which had pre-existing environmental and forest clearances.

As featured in Womp 2021 Vol 02 -