India proposes overhaul of mining sector amid concerns over legality and social impact

  • The government of India has proposed structural reforms in the mining sector including legal amendments aimed at boosting the economy. The government notes that it is conscious of environmental and social concerns.
  • The proposed changes aim to increase participation of the private sector in mineral exploration, clearly define illegal mining, remove the distinction between captive and non-captive mines, resolve legal issues, move towards auction only regime, develop a national mineral index, create tangible assets using district mineral fund etc.
  • There are questions over whether the proposed changes are legally tenable and will bring the desired investment and what impact they will have on the rights of tribal communities and forest dwellers.

In its latest endeavour to battle the slowdown in the economy following the COVID-19 pandemic and associated lockdowns, the government of India has proposed reforms in the mining sector by amending the Mines and Mineral (Development and Regulation) Act, 1957. Experts on the mining sector believe the move is not only regressive and legally untenable but could also impact the rights of tribal communities and forest dwellers. The government, however, emphasised that the reforms are conscious of the environment and social concerns.

The amendments proposed by the Union Ministry of Mines are in line with the announcements made in May 2020 by India’s Finance Minister Nirmala Sitharaman for enhancing private investments in the mineral sector while she was outlining government’s efforts to revive the economy impacted by COVID-19. The government had unveiled the proposed amendments online on August 24 and asked people, states, mining industry, industry associations etc. to send their comments and suggestions by September 3, 2020. 

In a statement, the Mineral Inheritors Rights Association, a network of civil society groups, said that they are anguished to note that only 10 days have been provided for public consultation on the proposed mining reforms that are extremely crucial and would have huge implications across the country. They said this is not even enough time to seek information under the Right to Information (RTI) Act to evaluate the proposals meaningfully and also clearly violates the pre-legislative consultation policy (PLCP) of the Indian government itself which mandates a transparent pre-legislative process that needs to be followed before laws are amended. 

In its proposal, the government notes that the biggest need for the country today is employment generation and the mining sector is one of the highest employment generating sectors. “Sectors like mining machinery, steel, aluminium, commercial vehicles, rail transportation, ports, shipping, power generation are closely linked to the mining sector. Therefore, any improvement in the mining sector implies employment generation in the concerned sectors. Mining activities are concentrated in the areas that need most employment opportunities,” the proposal noted.

It also held that the government has taken a decisive path towards transparent resource allocation regime through auctions only since 2015 and the amendments are for bringing the best practices that can help harmonise employment, technology, growth and environment. “While the focus is on employment generation, the government is fully conscious of the environmental and social concerns … these proposals for structural reforms in the mining sector are all aimed at harmonious balance employment and environment,” the proposal stressed. 

The government has proposed nine structural changes in the sector. One of the major changes it aims to bring in is redefining the norms of exploration for auction of mineral blocks to ensure a seamless transition from exploration to production. Currently, government agencies and other notified agencies explore an area up to G2 level for auction of mining lease and G3 level for composite lease. Both G3 and G2 are classification levels defining the availability of mineral resources.

The government notes that the time required to reach the prescribed level of exploration before putting a block to auction is not only long but is ridden with uncertainties and thus proposed changes are to increase the participation of the private sector in exploration activities. It is now aiming to redefine the standard of exploration required for auctioning of blocks for prospecting license-cum mining lease from the existing G3 level to partially explored blocks of G4 level having potential for mineral development. 

India is boosting the mining industry to revive its economy. Photo by Arun KV/Unsplash.

It hopes to bring in private investment for exploration of mineral blocks with this move and aims to provide a seamless and hassle-free transition from exploration to production. “Mineral sector can also adopt an open acreage licensing policy for allocation of mining rights. This will give a major boost to the production of minerals in the country by allowing all year round award of blocks through transparent basis.”

But there are questions around this practice and whether it will meet the purpose the government claims. S. Vijay Kumar, who has also been the secretary of the mines ministry  said, “In India, auctioning of mineral concessions was introduced only in 2015, and it is not global best practice and it does not incentivise high-risk venture capital that is needed for exploration at depth for many of the metals we now need, like base metals.” 

“In so far as allowing auction at an earlier partially explored G-4 stage is concerned, technically the step is regressive. The world over, initial geological surveys are done at public expense, so as to reduce the risk for subsequent private sector investment in exploration. India needs to attract exploration for deeper mineral deposits, using high technology. Such exploration can only be funded by venture capital. As it is, after 2015, there is not much interest for exploration at G-3 levels. Increasing the risk and subjecting venture capital to an auction regime is unlikely to succeed. Venture capital seeks investment opportunities globally and will go to more favourable jurisdictions,” Kumar, who is now a distinguished fellow at The Energy and Resources Institute (TERI), told Mongabay-India.

Read more: Mines ministry seeks public hearing exemption for expansion of non-coal mining projects

The government wants to resolve legal hurdles, move towards auction-only regime

The proposed amendment also focused on resolving issues where large numbers of mineral blocks are stuck in legal cases and emphasized on moving towards an auction-only regime for allocation of mineral resources. It noted that a large number of potential mineral bearing areas are blocked and are not contributing towards mineral production and employment generation. The government aims to amend the existing norms to relocate such mineral blocks through transparent auction. It also proposed an authority to decide the value of expenditure occurred for exploration in such legacy cases whose rights will be terminated. It is estimated that about 500 mines are stuck in such legacy cases.

On this, Kumar noted that as the ministry’s note itself says, many of these issues are under litigation. “The ministry does not clarify the nature of the litigation, but it is no secret that in many cases the concessionaires holding reconnaissance permits (RP) and prospecting licences (PL) applied to the state governments to grant them the next stage concession as per the law, but the state governments failed to take a decision for one reason or another.” 

“Some of the concessionaires had perhaps brought in Foreign Direct Investment (FDI). To now arbitrarily close the doors and put the concessions to the auction may not only be unfair and open to legal challenge but may shake global confidence in the Indian mining regime itself,” Kumar said.

Kanchi Kohli, a senior researcher with Delhi-based Centre for Policy Research, stated that these amendments are looking to boost the mining sector in India by incentivising private sector participation and enhancing regulatory subsidies. 

“The justification draws on economic recovery for the sector and employment generation. However, it offers a narrow and tunnelled vision into addressing both these issues. This is visible in at least three of the proposed amendments. First, the legacy issues don’t include long-standing land alienation, displacement, livelihood loss, ecological damage and decades of exposure to pollution and industrial accidents in mining geographies. Second, relates to employment generated from the mining sector in mining geographies,” Kohli told Mongabay-India. 

She stressed that the amendments once again take a one-sided approach by not accounting for the number of jobs and economic supply chains that are affected when mining operations are introduced in greenfield areas or expanded. “Third is the emphasis on increasing private sector participation in mining at a time when there is a global economic recession and health pandemic and there is no assurance of investments. Once approvals are granted large areas are fenced out and excluded from existing productive uses irrespective of how long it takes for mining operations to start,” she said.

Coal is among the most important minerals in India’s mining sector. Photo by ECSP/Flickr.

Read more: India’s mining sector: Present is tense and future could be imperfect

To remove the distinction between captive and non-captive mines

Another major amendment that the government intends to go ahead with is removing the distinction between captive and non-captive mines as it notes that captive mines are catering exclusively to their captive plants and the mining activity is restricted in terms of quantity and grade of mineral required by the captive plant. 

“This results in sub-optimal mining. It also creates an environmental hazard on account of heavy stock of unstable extracted minerals lying at the mine head that cannot be sold due to restriction in law. On the lines of commercial mining, all mineral blocks may also be auctioned for commercial mining without distinction of captive or merchant mines,” noted the proposal while emphasising that the idea is to ensure that in future all mines will be auctioned without any end-use restriction.

The government also aims to remove the right of first refusal available to existing captive mines. According to the amendment proposal, the existing limit of allowing 25 percent of the total mineral excavated in the previous financial year, for which end-use was specified, is proposed to be increased to 50 percent for the auctioned captive mines beyond their specified captive use volumes. 

Kumar, the former secretary of the ministry of mines, explained that the concept of “captive” and “non-captive” mining was not part of the mining law (except for coal), till the 2015 amendment that brought in “auctions” as the mode of grant of concessions. 

“This distinction was regressive and contrary to global best practice, since it artificially segments the industry, and reduces the scope for the economy and resource-use efficiency. As such the removal of the distinction is a good step but should be taken to its logical conclusion (and not for only 50 percent of the production),” said Kumar. 

“ … the proposal seeks to remove the right of first refusal to existing holders of captive mines when these mines are put to auction in 2030. In the case of many iron mines, such as those currently held by Tata Steel, in case the auction is won by another bidder, the current steel making assets will be left stranded, while it will take the new owner time to restart the mine and reorient the transportation infrastructure to feed his steel plants. Large supply disruptions in the post-auction period, therefore, are possible, even likely. The alternative may be high and unsustainable bidding by the current owners, with every possibility of a winners curse,” Kumar pointed out.

Clearly define illegal mining

The other reforms proposed by the government include the development of a transparent national mineral index (NMI) for determination of levies and taxes on the lines of the recently launched national coal index. The National Mineral Index will determine the value of minerals which will then form the basis for the calculation of royalty and other such levies of selected minerals.

The government also aims to clarify the definition of “illegal mining” as it notes that at present there is no differentiation between illegal mining done outside the leasehold area and mining in violation of various clearances and approvals inside a mining lease area. It also seeks to rationalise stamp duty and bring unused mineral blocks into production.

It noted that large mining blocks with very high quality of resources are not brought into production for many years resulting in sub-optimal utilisation of valuable national mineral resources. The amendment aims for “vesting back of such allocated non-working mines of private companies, which are not made operational within three years to the concerned states for re-allocation through auction.” Similarly, the virgin areas allocated to public sector units that are not brought in production are also proposed to be reviewed and vested back to states. 

Another important change proposed is an amendment to use the district mineral fund for creating tangible assets in mining-affected areas. DMF was introduced to earmark funds for benefit of the persons affected mining and also for the rehabilitation of infrastructure in mining-affected areas. The proposed amendments also aim to make the National Mineral Exploration Trust (NMET) autonomous. 

Sumita Sindhi, assistant professor at the Indian Institute of Management (IIM), Sambalpur explained that the focus on tangible assets will lead to utilisation of funds in creating infrastructure. 

“Physical structures are easier to erect and can be showcased, but as experienced mining-affected areas need more focus on restoration of ecology and improvement of the environment. Apart from this, the softer issues such as empowerment of tribal population, gender, health and livelihoods need a deeper involvement and focus,” Sindhi told Mongabay-India. 

She stressed that opening up exploration work to private entities and coming up with the NMI, all seems to be good-intentioned, but in the open market, there is a greater risk of over-utilisation/exploitation of resources. “The market-based instruments can increase the revenue stream to the state government, provide employment opportunities to the locals but have to be under strict governance, keeping in mind the optimum use of natural resources.”

Tushar Dash, an independent researcher on forest rights, said that forest diversions for mining and other projects have in the past have severely affected the rights of tribal people and forest-dwelling communities. “It is found that in recent years forests have been diverted without complying with the provisions of the Forest Rights Act and without the consent of tribal communities. Post-COVID policy interventions such as the decision for post-facto approvals of forest and environmental clearances have raised serious concerns about the adverse impact on the tribals and forest dwellers. The new proposed amendments to open up mining sector for private sectors would further undermine the FRA, Panchayats (Extension to Scheduled Areas) Act, 1996 (PESA) and the constitutional rights of tribal people and forest dwellers and severely affect their natural habitats,” Dash told Mongabay-India.


Banner image: Workers inside the Khadia coal mine in Singrauli. Photo by International Accountability Project/Flickr.

Exit mobile version