FACILITATING FOREIGN DIRECT INVESTMENTS IN INDIAN BUSINESS AND INDUSTRY
FACILITATING FOREIGN DIRECT INVESTMENTS IN INDIAN BUSINESS AND INDUSTRY
With the launch of the National Mineral Policy 2019, India presents a major opportunity for investors.
India has large reserves of Iron ore, Bauxite, Chromium, Manganese ore, Baryte, Rare earth and Mineral salts.
The Metals and Mining sector in India is expected to witness a major reform in 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 as well as the rise in infrastructure development.
India holds a fair advantage in cost of production and conversion costs in steel and alumina. Its strategic location enables convenient exports to develop as well as the fast-developing Asian markets.
India produces 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).
Rise in infrastructure development and automotive production are driving growth in the sector. Power and cement industries are also aiding growth in the metals and mining sector. Demand for iron and steel is set to continue, given the strong growth expectations for the residential and commercial building industry.
India is the third largest producer of coal^. Coal production in the country stood at 688.8 million tonnes in FY18. India’s coal production in FY19 to reach 739.36 million tonnes.
India ranks fourth in terms of iron ore production globally. Production of iron ore in FY19 (up to Feb 19) stood at 187.60 million tonnes. India has around eight per cent of world’s deposits of iron ore.
India became the world second largest crude steel producer in 2018 with output 106.5 million tonnes.
According to Ministry of Mines, India has the 7th largest bauxite reserves - around 2,908.85 million tonnes in FY18. Aluminium production stood at 2.25 MT in FY19 (up to February 2019) and is forecasted to grow to 3.33 million tonnes in FY20.
The Ministry of Steel aims to increase the steel production capacity to 300 million tonnes by 2030-31 from 134.6 million tonnes in 2017-2018 indicating new opportunities in the sector.FDI caps in the mining and exploration of metal and non-metal ores have been increased to 100 per cent under the automatic route.Approval of MMDR Bill (2011) to provide better legislative environment for investment and technology.National Mineral Policy 2019 launched for transparency, better regulation and enforcement, balanced social and economic growth into the sector.In July 2018, Union Minister of Coal, Railways, Finance & Corporate Affairs launched a mobile application ‘Khan Prahari’ and Coal Mine Surveillance & Management System (CMSMS) developed by Central Mine Planning and Design Institute (CMPDI).
By March 2019, 105 mineral blocks are expected to be auctioned.As of May 2019, 64 mineral blocks have been auctioned.The Multi-sensor Aero-geophysical Survey of the obvious geological potential area was inaugurated on April 07, 2017.Mining Surveillance System (MSS) was launched on January 24, 2017. It aims to curb illegal mining activity through automatic remote sensing detection technology.
There is significant scope for new mining capacities in iron ore, bauxite and coal and considerable opportunities for future discoveries of sub- surface deposits.
Infrastructure projects continue to provide lucrative business opportunities for steel, zinc and aluminium producers. Aluminium production is forecasted to grow to 3.33 million metric tonnes by FY20.
Iron and steel make up a core component of the real estate sector. Demand for these metals is set to continue given strong growth expectations for the residential and commercial building industry.
The Mining industry in India is one of the core industries of the economy. It provides basic raw materials to many important industries.The Mining industry is characterized by a large number of small operational mines.India is endowed with huge resources of many metallic and non-metallic minerals. India is home to 1,531 operating mines and produces 95 minerals, which includes 4 fuels, 10 metallic, 23 non-metallic, 3 atomic and 55 minor minerals (including building and other materials).The number of mines which reported mineral production (excluding atomic, fuel and minor minerals) in India stood at 1405 in 2018-19 as compared to 1430 in 2017-18.Based on the geological mapping of the country, an area of 571,000 sq. km, out of a total of 3.1 mn sq. km. has been demarcated as Obvious Geological Potential (OGP) area, where the geological potential for the occurrence of mineral deposits is higher.
Mineral concessions (Mining Lease & Prospecting Licence cum Mining Lease) grant to be granted through auctions for the companies interested in mining or for the raw material for their downstream industry. An Inter-Ministerial Group facilitator constituted for expediting the clearances and approvals process. Exploration companies can venture into the revenue share model, being formulated for the exploration of blocks identified by the Geological Survey of India. This has been enabled by the National Mineral Exploration policy, 2016 announced in July 2016. Around 100 blocks have already been identified by GSI for auction. With the launch of the National Mineral Policy 2019, India presents a major opportunity for investors. India has large reserves of Iron ore, Bauxite, Chromium, Manganese ore, Baryte, Rare earth and Mineral salts. India has vast mineral potential with mining leases granted for longer and stable tenure of 50 years. The demand for various metals and minerals will grow substantially over the next 15 years. India’s strategic location enables convenient exports.
· The GVA accrued from the mining and quarrying industry in 2018-19 is estimated to $3705.64 Bn.
· The mining and quarrying industry’s contribution (at current prices) to GVA accounted for about 2.38% for the first quarter of the year 2018-19.
· Up till December 2017, 33 mineral blocks have been successfully auctioned, having a total value of estimated resource of $24.2 Bn.
· The total value of mineral production (excluding atomic and fuel minerals) during 2018-19 has been estimated at $16.53 Bn, which shows an increase of about 10.11% over that of the previous year.
· India has 1531 mines, which are distributed across the country as follows
1. Tamil Nadu – 230
2. Madhya Pradesh – 197
3. Gujarat – 191
4. Karnataka – 142
5. Odisha – 132
6. Andhra Pradesh – 129
7. Chhattisgarh – 112
8. Goa – 87
9. Rajasthan – 85
10. Maharashtra – 75
11. Jharkhand – 58
These 10 states account for 94% of the total number of mines in the country.
· Among 175 Mineral Resource Assessment Projects, 29 are on ferrous minerals (iron, manganese and chromite), 42 precious metals and mineral, 72 for non-ferrous and strategic minerals, 32 on industrial and fertilizer minerals.
The rise in infrastructure development and automotive production is driving the growth of the metals and mining industry in India.The growth in the mining industry in terms of production of minerals has significantly improved in comparison to recent past. It is pertinent to recall that the industry recorded a negative growth of 0.6% for two consecutive years (2011-12 and 2012-13).The total value of mineral production (excluding atomic & fuel minerals) during 2018-19 has been estimated at $16.53 bn which shows an increase of about 10.11% over that of the previous year. The states that have witnessed an increase in the value of mineral production are:
1. Karnataka – 30.66%
2. Chhattisgarh - 29.98%
3. Rajasthan – 25.61%
4. Goa – 23.46%
5. Odisha – 21.98%
6. Madhya Pradesh – 17.34%
7. Maharashtra – 2.07%
8. Jammu and Kashmir – 1.35%
The value of metallic minerals increased by 26.86% in 2017-18.
During 2017-18 (excluding atomic, fuel, and minor minerals), the private sector emerged to play a dominant role in mineral production accounting for 67.33% or $5.26 bn crore in the total value. There has been a notable turn around ever since the government has taken initiative for policy reforms. Minerals like manganese, lead, copper, alumina are expected to witness double-digit growth in the years ahead. There is a significant scope for new mining capacities in iron ore, bauxite, and coal. India has an advantage in the cost of production and in conversion costs of steel and alumina.
FDI up to 100% under the automatic route is allowed in:
1. Mining and exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957.
2. Coal and Lignite mining for captive consumption by power projects, iron and steel cement units and other eligible activities permitted under and subject to the provisions of Coal Mines Nationalization Act, 1973.
3. Setting up coal processing plans like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plans for washing or sizing.
FDI up to 100% under the Government route is allowed in:
1. Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities.
2. Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities subject to industry regulations and the Mines and Minerals (Development and Regulation Act 1957).
· The Government has amended the Mines and Minerals Development and Regulation Act 1957 (MMDR Act). The amendment removed discretion by instituting auction to be the sole method of grant of major mineral concessions and, thereby bringing in greater transparency. It also provided the much-needed impetus to the mining industry by deemed extension of mining leases. The Salient features of the recent amendments are:
o Mineral Concessions Grant Through Auctions to bring transparency and remove discretion.
o District Mineral Foundation (DMF) to address the grievances of the people affected by mining and in turn improve the image of the mining industry.
o National Mineral Exploration Trust (NMET) for incentivizing regional and detailed exploration to fill the gaps in exploration in the country.
o Mining Leases for 50 years and even the existing leases deemed extended eliminating any renewals for security of tenure.
o Stronger penal provisions have been put in place to check illegal mining. A penalty of up to (approximately) $7200 per hectare of the area and jail term of up to 5 years is the probable punishment for illegal mining.16
· National Mineral Exploration Policy 2016 announced in July 2016. Around 100 blocks have been identified by Geological Survey of India for auctioning on revenue sharing mechanism for regional exploration to encourage private participation in exploration. The bidders would be protected by way of entitlement for a normative cost in the event unsuccessful outcome after exploration. The mechanism is being formulated in consultation with the stakeholders.
· Budgetary allocation towards the Ministry of Mines stands at $117.6 Mn.17
Mineral blocks of non-minor minerals are being put up for auctions by the States for Mining or Prospecting cum Mining, depending on their level of exploration. The grant process is to be completely transparent through competitive bidding on an e-auction portal. An Inter-Ministerial Group, Post Auction Mining Clearances and Approvals Facilitator (PAMCAF) has been constituted which will expedite the requisite clearances to enable the early start of mining activity.18
The aim on the National Mineral Policy (NMP) 2019 is to have an effective, meaningful and implementable policy that brings further transparency, better regulation and enforcement, balanced social and economic growth as well as sustainable mining practices. The NMP 2019 focuses on the Government’s Make in India initiative and gender sensitivity in terms of its vision.19 The NMP 2019 aims to attract private investment through incentives while the efforts would be made to maintain a database of mineral resources and tenements under the mining tenement system.
· BHP Billiton (Australia)
· Rio Tinto (Australia)
· De Beers (Anglo American)
· Australian Indian Resources (Australia)
· India Resources Limited (Australia)
· Up till November 2018, 50 mineral blocks across nine States have been auctioned. The States include Rajasthan, Odisha, Madhya Pradesh, Chhattisgarh, Karnataka, Jharkhand, Andhra Pradesh, Gujarat and Maharashtra. The estimated value of the e-auctioned minerals stands at approximately $31.6 Bn.
· Restrictions on sharing baseline geo-scientific data in public domain have been relaxed by the Ministry of Defence.
India is home to 1,531 operating mines and produces 95 minerals – 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals. India is the 2nd largest producer of coal. Coal production grew at CAGR 4.6% over FY14-FY19 (to 730.35 MT) and is expected to grow 6-7% Y-o-Y over FY20 as miners focus on the surface mining of coal. Coal’s share in India’s primary energy consumption is expected to be 48% in 2040. India is the 2nd largest crude steel producer in the world, generating an output of 106.5 MT in 2018, a growth of 3.7% Y-o-Y. India’s steel consumption rose 7.5% Y-o-Y and 7.9% Y-o-Y over the last 2 years, outpacing a 2.1% to 5% growth globally.
Over 2030-31, crude steel demand/production forecasted to reach 255 MT
Per capita finished steel consumption also expected to rise to 158 kg by 2030-31 (from 74.1 kg in 2018)
The country’s FDI Policy allows: