Mineral mining in need of FDI, modern technology: FIMI Director R K Sharma

He says, failure to attract investment in the same order as our geological siblings has kept India as a big net importer of minerals

R K Sharma, FIMI
R K Sharma, director general of Federation of Indian Mineral Industries
Kunal Bose
4 min read Last Updated : Dec 02 2020 | 10:01 PM IST
Lack of foreign investment and application of modern exploration technologies in the mining sector have made the country a big net importer of minerals, R K Sharma, director general of Federation of Indian Mineral Industries, tells Kunal Bose. Edited excerpts:

Why is the performance of India’s mining industry not in sync with the resources lying underground? 
We are aware that geologically India has almost an identical prospectivity as the world’s mineral rich countries such as Australia, Brazil and South Africa. But the contribution of the mineral industry to our GDP in 2018-19 was a disappointing 1.75 per cent compared with 7.5 per cent for South Africa and 6.99 per cent for Australia.  

This is because we have so far exercised the soft option of extracting surficially available bulk minerals such as coal, iron ore, bauxite and limestone. No wonder during 2018-19, against our production of Rs 244,216 crore worth of major and minor minerals, minerals and metals imports cost us Rs 910,840 crore. The big trade deficit on this account is due to our importing high-value gold, diamond, platinum, nickel, cobalt, rare earths, etcetera. These are the difficult-to-find minerals and call for high-end exploration and prospecting technologies. 

So, despite the potential, India has remained highly underexplored? 
Our failure to attract investment in the same order as our geological siblings has kept us as a big net importer of minerals. In spite of the government allowing 100 per cent foreign direct investment (FDI) in the mining sector in February 2000 and the subsequent revision of national mineral policy according the private sector a significant role in exploration, the situation on the ground has remained unchanged. The only way to reduce our dependence on minerals imports is to secure FDI on a large scale and adopt modern exploration technologies by making necessary changes in Mines & Minerals (Development & Regulation) Act, 1957. Once the requisite changes are made, there has to be policy stability.

What is the size of geological under-exploration in India? 
The obvious geological potential (OGP) area of 0.571 million sq km is 17.4 per cent of the country’s total landmass. Lack of investment and appropriate technology have restricted exploration and actual mining to around 10 per cent and 1.5 per cent of OGP area, respectively. The base paper on national mineral exploration policy, 2015 has identified OGP areas mineral-wise. According to it, we have 300,000 sq km under diamond and other precious stones, 181,150 sq km under base metals and 102,890 sq km under gold. However, due to lack of exploration leading to poor extraction, all three continue to figure prominently in our import bill. 

But why, in spite of our excellent resources, has FDI remained shy? 
Mining, a long gestation business, takes time to generate returns. Foreign groups will come in only in an environment of policy stability underpinning a rate of return commensurate with the risk involved in exploration. While we have political stability, the MMDR Act, 1957 has proved to be unstable. Not only has the Act been subject to amendments from time to time, many of its provisions have not been honoured.

Moreover, the unconscionably long time that the authorities concerned take in processing reconnaissance permits, prospecting licences and mining leases has compromised India’s appeal as a mining investment destination for foreign groups. No wonder then over the last three years, India ceased to find a place among attractive destinations for investment opportunities in Fraser Institute’s annual survey of mining companies. 

Are tax rates in India a disincentive for investment in mining? 
The mining industry in India remains the highest taxed in the world. Let’s take the typical case of iron ore. The new iron ore mines here have an effective tax rate (ETR) of 54 per cent and the existing ones 58 per cent. Compare that with ETR of 34 per cent in Canada and 39.7 per cent in both Australia and South Africa.  

Topics :FIMIForeign direct investmentIron Oreminerals

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