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BW Businessworld

What The Mining Sector Needs

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The past few years have been a kind of roller-coaster ride for the Indian economy.  The initial euphoria over the 9 per cent annual GDP growth rate, which could not be sustained,gave way to a deep pessimism, and in many sectorsthe complacency which had set in was replaced by abdication of responsibility;all in all,governance took a back seat, with results we see today in mining and many other sectors.

There is no doubt that today the mining sector is one of the key areas for attention as regards the structural and governance issues, in addition to the environmental and social issues already under scrutiny by Courts.  The Mines and Mineral (Development and Regulation) or MMDR Act 1957 is the main Central legislation in force for the sector. After the liberalisation in 1991, a National Mineral Policy was promulgated in 1993 which set out the role of the private sector in exploration and mining and the MMDR Act was amended several times to attract the private  sector investment including FDI, into exploration and mining in accordance with NMP 1993.

In the next 10 years though private sector mining activity picked up significantly particularly with respect to bulk minerals (“the low hanging fruit”), investment in exploration, particularly FDI investment in deeper exploration using advanced technologies, failed to pick up according to expectations, and the Government appointed the Hoda Committee in 2005, on the basis of the Report of  which the National Mineral Policy 2008 was finally announced, addressing issues relating to simplification of the  concession grant and management systems so as to attract more private investment.

By early 2009, it was realised that reform of the mineral sector needed to go deeper, into the issuesof technicaland management standards enforcement; environmental management; local community engagement;institutional capacity creation and enhancementetc; ,so that good mining practices became the norm and  local communities can see mining as an opportunity for their socio-economic development, rather than as a threat to their existence. However efforts to frame a comprehensive strategy of sector reform, not merely of the concessionmanagement system, but to ensure good governance through a total regulatory systems overhaul has not been able to make headway given the vested interests and policy paralysis.

The “comprehensive strategy” must be built around a comprehensive legislation (say, the MMDR Act 2014) to replace the MMDR Act 1957, which should provide for:
  • Reducing discretion and improving transparency in the grant of concessions, and specifyingeffective enforcement and regulatory mechanisms;
  • Incentivising deeper exploration, with advanced technologies and FDI;
  • Attracting the private sector by creating a level playing field and providing pre-competitive data;
  • Improving technical standards, and regulatory capacity of the internal technical regulators (State-level Directorates of Mining and Geology or DGMs and the Indian Bureau of Mines or IBM);
  • Implementing a Sustainable Development Framework (SDF) to promote good mining practiceswith environmental and social safeguards.
  • Ensuring a stake for local communities and ensuring that they benefit in terms of livelihoods and opportunitiesandcreation of  socio-economic infrastructure.
  • And most importantly, rationalising royalty regimes, including auction of fully proved deposits, and creating a perpetual ring-fenced revenue stream to fund the good governance mechanisms (DGMs, The IBM, Mining Tribunal, Regulatory Authority and Special Courts).
The mining sector is in deep crisis. Public confidence in mining is at an all-time low. Intervention by the Supreme Court has kept matters under temporary control but permanent solutions are required. India’s national security includes resource security, and for this reason as much as any other, it is necessary to ensure good governance of the sector through stronglegislative reform .

The author is, S. VijayKumar, Distinguished Fellow, TERI