Mining

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OVERVIEW

India is blessed with the production of 95 minerals– 4 fuel-related minerals; 10 metallic minerals; 23 non-metallic minerals; 3 atomic minerals; and 55 minor minerals (including building and other minerals). Mining is one of the core sectors of Indian economy and acts as a catalyst of growth for major industries like power, steel, cement, etc., which, in turn, are critical for the overall development of the economy. India is the third largest producer of coal and chromite, fourth largest producer of iron & manganese ore and sixth largest producer of bauxite.

Capacity and Production

India accounts for around 8 percent of the world’s iron ore deposits. The production of iron ore reached 204 million tonnes in 2019- 20. The demand of iron ore is expected to rise to 208 million tonnes by 2020-21 and 257 million tonnes in 2023-24. The production of coal,on the other hand,increased from 606.89 million tonnes in 2018-19 to 958 million tonnes in 2019-20.

The index of mineral production of mining and quarrying sector increased by 1.7 percent in 2019-20 as compared to previous year growth of 2.84 percent in 2018-19. During April- June 2020, the IIP for the sector stood at 83.9, registering decline of (-)22.4 percent as compared to corresponding period of the previous year.

Exports

India is one of the largest exporters of iron ore in the world. The exports of iron ore grew exceptionally in the past five years and registered CAGR of 38.5 percent during FY15-20, increasing from US$ 515.3 million in 2014-15 to 2624.96 in 2019-20. During April- June 2020, the exports of iron ore and minerals stood at US$1374.76 million and recorded growth of25.51 percent, as compared to corresponding period of the previous year. The export of bulk minerals registered a CAGR of 7.32 percent during FY15-20. The export of other minerals such as ‘mica’, ‘coal, coke, and briquettes etc’, ‘granite, natural stone, and product’, ‘Sulphur, unroasted iron pyrite’and ‘other crude minerals’ registered negative CAGR (-)1.26, (-)2.60, (-)0.47 and (-)1.87 respectively, during FY15-20. The export of processed minerals also registered negative CAGRof (-)1.7 percent during FY15-20, declining from US$ 1034. 4 million in 2014-15 to 948.54 million in 2019-20.

Trends in Export of Select Minerals

(In US$ Million)

Description 2014-15 Value 2015-16 Value 2016-17 Value 2017-18 Value 2018-19 Value 2019-20 Value April-June 2020-21 Value % CAGR
(FY15-20)
Iron ore 515.27 191.46 1533.53 1471.06 1317.29 2624.96 1041.89 38.49
Mica 56.02 52.72 55.83 81.40 71.30 52.57 12.48 -1.26
Coal, coke, and briquettes etc 136.51 160.45 164.57 167.82 171.63 119.68 14.84 -2.60
Bulk minerals and ores 443.94 550.51 419.21 402.17 618.05 631.94 92.24 7.32
Granite, natural stone, and product 2019.82 1832.58 1856.08 1942.67 1974.14 1972.37 163.10 -0.47
Sulphur, unroasted iron pyrite 60.57 78.93 52.13 66.37 63.05 55.13 24.29 -1.87
Other crude minerals 152.26 108.02 131.84 146.13 174.67 161.55 25.93 1.19
Source: DGCIS, Exim Bank Research

FDI

FDI of upto 100 percent is allowed under automatic route for the mining and exploration of metal and non-metal ores including diamond, gold, silver and precious ores in India. FDI of up to 100 percent is also permitted under the automatic route to explore and exploit all non-fuel and non-atomic minerals and process all metals as well as for metallurgy. In March 2018, the government allowed 100 percent FDI in coal mining under automatic route as well. Under the Government approval route, 100 percent FDI is also allowed in mining and mineral separation of titanium bearing minerals and its ores.

Mining sector in India accounted for US$ 2.73 billion of FDI, accounting for 0.58 percent total FDI inflows during April 2000 to March 2020.

Outlook

The Metals and Mining sector in India is expected to witness major reformsover the next few years, owing to reforms such as Make in India Campaign, Smart Cities, Rural Electrification and a focus on building renewable energy projects under the National Electricity Policy,2019. According to an EY report on Indian Metals and Mining, despite improving competitiveness of renewables and gas-fired technology, coal is likely to remain the dominant source of energy in India till 2035, due to increased availability of domestic coal, sector optimization via regulatory changes and limited gas availability. While expanding solar and wind capacity will cut the share of coal in energy mix in long term, the demand for coal is expected to remain strong.

The recent commercialization of coal mining auctions will lay strong foundation for energy security in the country and provide large scale employment as well as huge opportunities for investment in coal sector. These efforts are expected to supplement coal production of 1 billion tonnes by 2023-24 and fulfill the domestic requirement of thermal coal in India.

 

SELECT GOVERNMENT INCENTIVES

Select Government Incentives

  • The Ministry of Mines has initiated an endeavor called 100 X 100 Model VAQ programme with an aim to increase Visibility, to improve Activity and to enhance Quality in various activities of the Geological Survey of India (GSI), in order to harness the energy and drive of the middle level officers of GSI for developing programmes implementable within 100-300 days which will have significant impact on VAQ parameters of GSI. Under this program, 125 middle level professionals of GSI were carefully selected, representing different domain expertise as well as all the Regions and State Units of GSI.
  • The Government under the ‘Atmanirbhar Bharat Abhiyan’ has introduced various structural reforms to boost the mining sector of India and make India self-reliant in the sector, few of which are listed below:
    • Commercial Mining has been introduced in the coal sector by allowing competition, transparency, and private sector participation in the coal sector through revenue sharing mechanism instead of fixed rupee per tonnes, allowing any company to bid for coal block and sell in the open market without end-use restrictions.
    • Further, entry norms for private players have also been liberalized by relaxing eligibility conditions at the time of bidding for a coal block, except the condition of ‘upfront payment with a ceiling’. The reform also envisages setting up an exploration-cum-production regime for partially explored blocks, as opposed to the prevailing provision of auction of only fully- explored coal blocks.
    • A total of₹ 50,000 Crores will be infused by the Central Government for evacuating coal production target of 1 billion tonnes by 2023-24 from Coal India Limited (CIL) and private blocks. The infused amount also includes investment in mechanized transfer of coal from mines to railway sidings worth₹ 18,000 crores.
    • Apart from this, the Central Government is also planning to incentivize coal gasification and liquefaction through grant of rebate in revenue sharing. Both these measures will help in reducing environmental impact.
    • The extraction rights of coal bed methane from CIL mineswill be open to auctionfor private participants. Measures to ease business operations have also been adopted in the coal sector such as mining plan simplification to reduce time in grant of approval by formulating a single window clearance system.
    • A relief worth ₹ 5,000 crore in relation to concessions in commercial terms will also be provided for the benefit of CIL consumers. The proposed measures include reduction of reserve price in auctions for non-power consumers, easing of credit terms, and enhancement of the lifting period.
    • The distinction between captive and non-captive mines is removed to permit the transfer of mining leases and sale of excess unused minerals, bringing better efficiency in mining and production.
    • The Ministry of Mines has been tasked with the responsibility to develop a mineral index for different minerals.
    • The stamp duty payable at the time of award of mining leases is also proposed to be rationalized.
    • To boost employment, growth and promote use of state-of-the-art technology,reforms have been introduced to bring about greater private investments in the sector. These reforms are expected to benefit companies involved in the business associated with aluminum, iron ore and limestone.