Digging minerals out of a policy hole

It is welcome that the Cabinet has approved a raft of reforms in India’s large minerals sector that would boost efficiency, shore up production and develop mining areas. Specifically, the wholly suboptimal concept of captive mining is to be abandoned for good, after decades of delays and dither.

And the law is to be amended to resolve legacy issues and enable auction of over 500 blocks to prospect and mine gold, diamonds, platinum, copper and zinc, and other minerals, so as to double output in the mineral economy in the next 4-5 years.

The policy intention to do away with captive mining makes perfect sense. Captive mining is plain inefficient and simply blocks scale economies and, more importantly, prevents specialists from foraying into mining and evacuation, and at a huge national cost. India imports well over Rs 1 lakh crore of steam coal annually, thanks to a combination, until recently, of monopoly production and questionable captive mining, despite our large coal reserves.

We clearly need norms to enable big-ticket investments by mining concerns to efficiently step up the output of minerals. The decision to allow hitherto captive miners to sell 50% of output in the open market is sensible, but what we really need is sound market design so that efficient producers can gainfully seek custom, subject to norms, rules and oversight.

Seamless mining licence for reconnaissance, prospecting and actual mining would hugely reduce transaction costs. A National Mineral Index to transparently determine levies and royalty would be path-breaking indeed. And the Rs 46,000 crore District Mineral Development Fund needs close monitoring for social and economic uplift. India can do a lot more than it has been with its minerals.


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