Mining Reform Finally Coming to India

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One of the biggest challenges to India’s growth path has been neutered. The government, earlier this week, put out an executive order amending its mining laws, opening to auction all iron ore, bauxite, limestone, and manganese mines.

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The order is known as an ordinance in India and using the executive route isn’t usually done by the government in democratic India, where any new law or amendment requires the passage of a bill in both houses of parliament. However, the Modi government is perceived to be running out of time on its much-touted reform electoral plank. Plus the ruling party lacks a majority in the upper house, so the Modi administration has started pushing through many of the components of its reforms blueprint via ordinances, which only require cabinet approval, much to the consternation of the opposition.

Along with the mining reforms, the Modi government also recently passed coal, insurance and land reforms by way of ordinances.

Reforms in the mining and coal sectors were necessary because there were archaic laws governing these sectors and due to allegations of corruption leveled against previous governments in the allotment of mines.

The mining ordinance seeks to remove government discretion in mine allotments and also encourage investment in mining by offering a 50-year lease. It also introduces the rather revolutionary concept, for India, of allowing the trading of mining rights.

Existing miners are permitted to continue operations until the lease is 50 years old after which the mines will be put up for auction. However, according to a report in The Economic Times – in order to avoid disruption – companies with over 50 year-old mining leases will be allowed to function until 2020, which goes up to 2030 if the leases were granted for captive use. After the time limits expire these mines, too, will go back up for auction.

This, say analysts, will be welcomed since many such mines, both iron as well as coal, had been ordered shut down by the Supreme Court of India, as reported by MetalMiner, affecting the operations of huge companies.

The auction of mines now seems to be the Modi government’s preferred route for interests of transparency. It has also given in to pressure brought on by some of the “biggies” in the steel, iron, and metals sectors like Anil Agarwal, chairman of Vedanta Resources. Agarwal has been consistently and rather vociferously calling for the Modi government to change the mining policy, dismantle controls and provide a level playing field for private enterprise.

Yet, it is too early to analyze whether the mining reforms are going to work out to everyone’s satisfaction. The mining ordinance is being accused of “pandering to all sections, private and public, and thus meandering in meaning.” The Federation of Indian Mining Industries, a representative body of private miners, has objected to the provision for reserving large areas for government-controlled companies only. This goes against the spirit of fair play, it says.

The ordinance, according to the private miners and other critics , also does not have any clause that allows initial reconnaissance for prospecting of minerals, which means no new mines will be developed.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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