Existing and future ‘captive mines’ may be converted to ‘merchant mines’ to boost supply of minerals & coal to small and medium consumers
The minerals sector is shackled in multiple regulations and that has crafted an artificial shortage and inflated the price of minerals, and coal in particular. High royalty and auction premium and high logistics cost hascompoundedthe problem. India must boost production and reduce import dependency of minerals and coal.
Surplus production and cheaper cost will promote new capacities in the core sector and reduce the price of power, steel, metal and cement. In sequel, cheaper inputs willbe available to economy giving a big push to manufacturing sector. That will softenWPI and boost export. As a multiplier effect, several direct and indirect jobs shall be generated.
In the recent past, after 2001, India had witnessed industrial growth of 12-15 per cent. But it could not sustain due toshortage of Mineral and Coal. By that time, excess regulatory controls superseded the facilitation leading tothe closure of mines and causing further shortage of minerals and coal. Its impact travelled to the entire economy and invited inflation and trade deficit. The mining growth entered in to a negative territory and the manufacturing growth was plummeted. In sequel, the Bank NPAs increased from 2013 onwards.
The regulatory phobia was even extended to the minor minerals such as sand and stone aggregates. Production was curbed andthe artificial shortage was crafted leading to abnormal price hike. In sequel, the construction cost was inflated affecting the infrastructure projects and the construction sector. Job growth was affected due to slowdown in manufacturing and construction.
During 2014-20, India took few corrective measures. The lease period of existing mines was extended. This could avoid disruption of the mineral production up to 2020 for merchant mines and up to 2030 for captive mines.The system of auction was introduced for the grant of new mining lease which expedited the process with transparency.
But aforesaid reforms couldn’t give any major push to the mineral production. With the increase in size of economy, now the shortage of mineral and coal hasagain aggravated. In sequel, the pithead sale price of minerals (including royalty and premium) is too high compared to the peer Nations. The logistics cost is also too high due to transporter’s cartel at mines and inadequate railway infrastructure. Hence, the minerals sector needs major reforms for averting future crisis. Few key reforms are mentioned below; those are not exhaustive.
While auctioning mines, the approvals and surface rights on the entire lease area should be provided so that the mines can be quickly started. For existing mines, the land acquisition, surface rights and other approvals may be facilitated enabling to boost production.
Upon consecutive failures of achieving minimum production target for three years, the penalties may be imposed. Upon repeated failures, the lease may be cancelled subject to few such exemptions, which are beyond control of the lease holder.
All existing and future "captive mines" may be converted to "merchant mines" enabling to increase supply of minerals and coal to small and medium consumers who can’t afford to own captive mines. Recent announcement to this affect may be reviewed and be applicable to all mines.
The royalty and premium may be levied on the actual sale price, similar to excise and GST, instead of IBM price list which doesn’t consider mines location, logistic cost and the mineral grade, size and mineralogy. More so, the IBM prices (excluding royalty) for the same grade are highly distorted due to differential premium on each mine, particularly PSU mines.
Particularly, in case of sub-grade minerals, the royaltyexceeds the economic value of the minerals, makingthe beneficiation activities unviable. Hence, huge stocks of subgrade minerals are accumulated in the mines causing wastage of mineral wealth; that must be resolved.
For reducing logistics cost, transporter’s cartel at mines must be abolished. Railway must develop new goods terminals in the mineral belt. Land and approvals for installation of pipelines and conveyors must be facilitated. Localized beneficiation plants must be promoted to reduce transportation burden.
The modification of mining plan may be quickly granted. Higher production up to 25 per cent in consecutive two years may be permitted without seeking any fresh approval. Environmental approval norms may also be eased since; there is no emission of green-house gases. Yes, pollution norms should continue unchanged.
Minor minerals’ (sand and stone aggregates) allocations and regulations may be simplified to resolve artificial shortage and high price. Non removal of sand from the rivers has reduced water storage capacity of rivers causing long term damage to water storage capacity; that must be resolved.
(The writer is an economics analyst and author. The views expressed are personal.)