Expert Speak Terra Nova
Published on Oct 17, 2020
To create a low-carbon tech-driven economy of the future running on clean energy — India would require access to key minerals.
Reforms in mining are a first step in ushering a green, tech-driven future

As the world struggles to make its way through the COVID-19 pandemic, sustainability of economies and the planet is back in focus where a return to “business as usual” is clearly a suboptimal option. India faces a twofold challenge — ensuring sustainable high growth driven primarily by technology and innovation while also securing a greener future for its population. This requires a rethink of the country’s economic priorities and the way it plans to secure a future that is richer in material and environmental wealth. Perhaps a good way to start is to plan how best to use the country’s abundant mineral resources and integrate them into a tech-driven green value chain. And that’s where long-term planning and progressive reforms in mining are crucial.

To the casual reader, the need to focus on mining while healing the environment may appear conflicting given the detrimental impact of extractive industries on the planet. Yet, to create a low-carbon tech-driven economy of the future running on clean energy, countries such as India would require access to key minerals. The production of minerals such as graphite, lithium, and cobalt may rise by as much as 500% by 2050 to meet the world’s growing demand for clean energy (World Bank, May 2020). So, the question facing India is: Will current levels of exploration with no changes in existing mining policies be enough to help the country achieve ambitious goals for large-scale adoption of clean technologies, renewable energy, energy storage, and electric vehicles? The current exploration policy does not provide an incentive for scientific exploration.

India’s mining — a success story in waiting for decades

As per Indian Bureau of Mines, India currently produces about 95 different mineral commodities (Brookings India, April 2020). The Geological Survey of India has identified 0.52 million km2 area as the Obvious Geological Potential area for mineralisation. Brookings note also highlights that India has excellent but unexplored or underexplored mineralisation potential for many tech commodities, which are likely to be highly in demand in the future as India’s large land mass has one of the finest geologies, mineralisation, and exploration potentials for both bulk and non-bulk commodities.

Compared with other resource-rich countries like Canada and Australia, India’s exploration expenditure is insignificant even though India’s prospective geology is broadly like that of Western Australia.

India’s exploration expenditure is estimated at around US$17 per sq. km (ORF, March 2018). Compared with other resource-rich countries like Canada and Australia, India’s exploration expenditure is insignificant even though India’s prospective geology is broadly like that of Western Australia. In year 2019, Canada and Australia accounted for 50% of the US$ 9.3 billion global exploration expenditure in non-ferrous metals (S&P Global, March 2020). Given current level of exploration and nature of policy, India is far away from ensuring a steady supply of minerals for technology-related products, demand for which is only going to rise over the medium to long-term.

Do proposed reforms go the distance?

There is a need to consider a long-time horizon in mining-related planning, whether it is from the perspective of the mine, the community or government. A policy direction towards solving short-term bottlenecks always needs to be compatible with a long-term vision. Since 2015, there has been significant dynamism in the resource sector in terms of progress towards a concrete policy direction. But in the path of unlocking the mineral potential of the country, exploration remains a less understood step in the overall mining development chain.

Amendments to the Mines and Mineral Development Regulations (MMDR) Act in 2015 may have brought in transparency in allocation but have failed to deliver on the promise of extensive exploration. And inviting foreign investors too has not paid off handsomely — the sector attracted only 0.7% (US$ 2.2 billion) of total Foreign Direct Investment (FDI) worth US$ 299.4 billion in the country in last decade despite allowing 100% FDI in the mining sector.

The proposed reforms fall short of conceptualising an entire value chain of commodities — exploration, discovery, extraction, and product development — that unlocks India’s mineral resource potential.

In such a scenario, even a simple rethink on mining policy appears to be a fresh breath of air. For example, the government has proposed to rationalise stamp duty payable at the time of award of mining leases and to remove the distinction between captive and non-captive mines. It also intends to amend the MMDR Act of 2015 to free up mines for auction and to bring in clarity in the definition of illegal mining.

The question is, do these measures go the distance, especially considering India’s long-term economic and environmental goals? Unfortunately, not. The proposed reforms fall short of conceptualising an entire value chain of commodities — exploration, discovery, extraction, and product development — that unlocks India’s mineral resource potential.

Clarity, collaboration, and competition should be the core of mining reforms

• For mining to flourish, the policy environment should offer security of tenure; a predictable, competitive, and sustainable tax regime; pre-set timeline for approvals and one-stop-shops; and freedom to market the mined product either locally or globally. For example — most of the mining jurisdictions have first-come first-serve (FCFS) methodology for allotting bulk mineral resources. (McKinsey, December 2014). Therefore, Exclusive Reconnaissance Permit (RP) as an instrument of exploration cannot be ruled out.

• As mineral exploration is highly specialised with technologies varying across commodities, the key for India is to strengthen its mining links with commodity powerhouses such as Australia and Canada. This will bring in much-needed innovation and technological knowhow in the sector.

• Encouraging private investment in exploration may be a good step, but much more needs to be done to ensure that such investments materialise. For that, measures that enable companies to gain from any discovery and the associated intellectual capital are critical. Such reforms will be a major boost for private risk capital likes of junior explorers (prospecting companies only involved in the early stages of mining development), who were responsible for 63% of all discoveries in last decade (MinEx Consulting, October 2019).

Mining is a long-term business, fraught with risks and costs in the short-term with potential gains only filtering in after many years. So, the lack of a conducive mining policy today not only hinders the current functioning of the sector, but also prevents maximising potential over the long-term. And if India truly aims to usher in a tech-driven low-carbon economy, then it is imperative that the country takes the first step for success — ensuring the availability of mineral resources for the economy. For that, resource sector needs policy environment that offers consistency and stability and complete overhaul of incentive structure for scientific exploration.

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Manash Kalita Neog

Manash Kalita Neog

Manash Kalita Neog is co-founder of Chase India.

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Rupali Handa

Rupali Handa

Rupali Handa is a public policy professional. Her work focuses on clean energy and climate change mitigation policy issues. She was formerly a part of ...

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