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India’s new mining reforms explained

By Matthew Hall 17 Mar 2021 (Last Updated March 17th, 2021 10:55)

India’s mining industry is currently going through it’s greatest legislative shake up in a generation, with India’s Government claiming that reforming the sector is vital for the country’s economic growth. We look at what India’s mining reforms could mean for the industry.

India’s new mining reforms explained
“Today, our country is optimistic of the future, it is optimistic of reaching the $5tn target,” said Narendra Modi Credit: Monty Rakusen

Speaking at the Global Mining Summit in December 2020, India’s Minister of Mines Pralhad Joshi reaffirmed the nation’s commitment to “structural reforms” to its mining sector, “to increase participation of the private sector in mineral exploration and redefine the norms of exploration for auction of mineral blocks, to ensure a seamless transition from exploration to production”.

India’s mining industry forms a major part of the nation’s economy, both in terms of its own contribution to GDP and its supplying the raw materials that underpin India’s considerable manufacturing and infrastructure industries. India is home to the fourth largest coal reserves in the world and also hosts significant sources of bauxite, diamonds, and titanium ore. 

Why is India’s mining sector important?

India has ambitious plans for economic growth. Addressing the World Economic Forum in January 2018, Indian Prime Minister Narendra Modi expressed his driving desire: to make India a $5tn economy by 2025. It was a claim optimistically restated towards the end of 2020, following what could be considered a slight stumbling block to economic growth in the form of the Covid-19 pandemic.

“Today, our country is optimistic of the future, it is optimistic of reaching the $5tn target,” Modi said during an interview with India’s Economic Times

“India is the third largest economy in terms of purchasing power parity. We want India to become the third largest in terms of current US dollar prices as well. The $5tn target will help us achieve that.”

It’s a bold target – becoming a $5tn economy in 2025 would require almost doubling the size of India’s economy in just five years – and it’s a target that the mining industry must play a key role in. The mining sector’s contribution to India’s GDP has been diminishing in recent years, which the Federation of Indian Mineral Industries attributed to the under-exploration of the nation’s “obvious geological potential” and a decreasing expenditure on exploration activities in the country.

Joshi said that the mining industry will be core to reaching the $5tn goal, both in terms of its direct contribution to GDP as well as its ability to grow downstream industries and employment. But growing India’s mining industry to a point where it can support a wider push for rapid economic growth requires hefty capital investment from private players, underpinned by renewed support from the state.

Why are changes needed?

India’s mining law has remained relatively unchanged since the initial legislation governing the sector was introduced in 1957, with the Mines and Minerals (Development and Regulation) Act, or the MMDR Act. MMDR provides a regulatory framework that categorises minor minerals – those governed by state governments in accordance with delegated powers – and major minerals, the commodities overseen by India’s Central Government. Minor minerals include stones for building, clay, and sand, whereas major minerals include all minerals other than mineral oils, petroleum, and natural gas. 

The pursuit of rapid economic growth in the next five years will require a strengthening across all of India’s industries. Currently, India imports coal from countries such as Australia, Indonesia, and South Africa – despite being host to globally significant sources of the fossil fuel itself. The country has already begun to open commercial coal mining to private players, in a move that will aim to keep coal imports at a low level and strengthen domestic production.

More general reforms to the mining law will hope to foster this competitiveness between public sector undertakings and private projects more broadly across the sector – something that has been missing from India’s industry. 

“Our aim is to encourage industry players to adopt sustainable technology solutions including green mining, coal ash ponds, and other newer technology vehicles that can further accelerate the productivity with the economy of scale and also better environmental performance,” Secretary at the Ministry of Coal Anil Kumar Jain told a virtual CEO roundtable in November 2020.

What changes are being made?

India is moving quickly with plans to revamp its mining sector. The flurry of reforms proposed include amending two provisions in the MMDR Act that would free up around 500 potential mining sites that have been rendered inaccessible by existing regulatory frameworks. 

Under current legislation, these potential leases have either surpassed the legal timeframe for the granting of a mining lease or cannot be reallocated at auction due to legislative red tape. These moves would essentially streamline the transition process between the various stages of mine development work, from exploration right through to production. 

There are further proposals to create a better statutory definition of illegal mining. Previously, there has not been a distinction between illegal mining done outside a leasehold area and mining in violation of approvals and clearances within a mining lease area. Under new amendments, illegal mining and the government’s powers in tackling the practice will only apply to mining committed outside a lease area, rather than mining that breaches regulations within an otherwise permitted lease area.

Who wins, and what are the concerns?

India’s cabinet approved the mining reforms at a cabinet meeting in January 2021 chaired by Modi. The winners, simply, are mining companies. These reforms are largely targeted at streamlining the processes and opening up more sites in India to mine, while also levelling the playing field between private enterprise and state-owned endeavours. 

Government-backed companies will be charged levies on the extension of mining leases, and the reforms also pave the way for the reallocation of non-producing blocks owned by government companies.

The changes to the definition of illegal mining also provide a somewhat controversial boon to mining companies. India’s mining law enables the government to recover 100% of the value of illegally extracted minerals. 

Mining within a lease area will become exempt, meaning any violation within that area, be that over-extraction beyond the mining plan or otherwise, will no longer be considered illegal mining in the same sense. Critics fear this could be abused, with private enterprises potentially facing little pushback on poor environmental records or over-extraction.

The government has repeatedly pledged that these reforms will reduce environmental damage from the mining industry and will embed sustainability at the core of all operations. It hopes that a more competitive industry will stimulate innovations and promote the use of new technologies to enhance sustainability. 

Modi’s government has also been criticised for proceeding with such sweeping reforms to the mining industry with minimal consultation. Proposals were publicly released in late August 2020, with the notice from the Ministry of Mines inviting comments from the public, states and territories, industry, and other stakeholders – but the timeframe given for feedback was just 10 days.

The Mineral Inheritors Rights Association, formed in March 2020 to push for transparency and accountability in India’s extractive industries, asserted that the 10-day period was a violation of India’s Pre-Legislative Consultation Policy.

“We are anguished to note that only 10 days have been provided for the proposed mining reforms that… would have huge implications across the country,” the association said in a statement. “What is even more disturbing and dangerous is that the state governments have not yet been consulted and a 10-day period for the states to respond undermines the federal spirit of this nation.”