Want mineral-intensive growth for new-age economy? Ease mining | Mint

Want mineral-intensive growth for new-age economy? Ease mining

Energy-transition minerals are expected to see demand explode, Photo: Mint
Energy-transition minerals are expected to see demand explode, Photo: Mint

Summary

India must move to expand mineral production through reforms aimed at grabbing opportunities.

2022 has been remarkable for India. In its 75th year of freedom, India surpassed the UK to become the world’s fifth largest economy. Its equity market has done the best. This year is also memorable for our best ever performance at the Commonwealth Games and first indigenously designed and built aircraft carrier, INS Vikrant, being commissioned. All these indicate that a new India has emerged, one that is much more ambitious, dynamic and full of aspirations to attain new heights.

Robust domestic demand and rising interest among global manufacturers to relocate plants to India offer a terrific opportunity to emerge as a global hub for manufacturing. India’s enormous potential in minerals and metals add to the country’s allure.

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India’s new-age economy is likely to be highly mineral intensive. Consider an electric car, which requires six times more mineral input than a conventional car. As India’s EV sales are set to rapidly for the rest of this decade, demand for lithium, cobalt, nickel and graphite will be enormous, along with that for iron ore in the form of steel, bauxite as a source of aluminium and copper, which are metals used across all types of vehicles.

Energy-transition minerals especially are expected to see demand explode, encouraged partly by participation in production linked incentive (PLI) schemes for advanced chemistry cell (ACC) batteries, solar PV modules, white goods and electronics manufacturing.

India’ target of 500GW non-fossil energy capacity by 2030 will be largely met by solar and wind capacity. However, the International Energy Agency says that onshore wind requires nine times more minerals than a gas-fired power plant, and a solar PV panel requires nearly thrice more minerals than a coal-fired plant of the same capacity. While aluminium and copper are crucial for solar power, wind power needs rare earth elements (REE), zinc, copper and aluminium.

As India aspires to be the ‘electronics hub’ of the world, minerals play a crucial role here as well. As many as 13 minerals are used in a mobile handset, while 46 are needed for each iPhone. A smart TV needs about 28 different minerals.

Traditional sectors like housing, infrastructure and transportation will also boost demand for iron ore, bauxite, copper, limestone, chromium, zinc, etc. Rapid industrial development in general is projected to double domestic demand for iron ore, bauxite, zinc, copper, nickel, etc, by 2030. In the primary sector, food security depends on rock phosphate and zinc as agricultural inputs.

However, India’s mining industry still faces regulatory hurdles that restrain growth of mineral production below what’s required to meet rapidly growing demand. The mineral value chain starts with exploration. But India’s expenditure on exploration, particularly for deep-seated minerals like copper, zinc, lead, gold, silver, etc, has been abysmally low. To encourage exploration, we should shift from the current ‘revenue maximizing’ model to an ‘exploration investment incentivizing’ model. This can also attract smaller explorers to India that have contributed well to the development of the mineral sector in Canada, Australia, South Africa and the US.

Indian law does not let a miner own a mining lease beyond 10 sq km in area for a mineral in a state. Although that limit has been expanded by some states, the ministry of mines’ recent proposal to reduce the area limit will stop major companies from participating in future auctions, thus denying India Inc the benefits of scale and global competitiveness that a liberal policy could deliver. In an auction regime with no limits on bids to acquire a block, such area restrictions should be done away with.

Minerals like iron ore and bauxite also face a problem of double taxation in the form of royalty on royalty. As royalty is payable on the average sale price (ASP) and the law does not allow any deduction of royalty from it, mineral users end up paying royalty on royalty, which dents their cost competitiveness. The law must exclude royalty and other charges from the sale value to determine the ASP.

There is also differential treatment across minerals for calculating the ASP. For example, bauxite is the only bulk mineral whose ASP is determined from the selling price of the end product, aluminium. The current law determines the ASP of bauxite as ex-plant, while it is an ex-mine calculation for all minerals. As a result, the derived ASP of bauxite is often 3-4 times the actual market price, hindering any large-scale auction of metallurgical grade bauxite. The basis of ASP determination for all minerals should be uniform (and ex-mine).

Private participation in the mining of critical minerals that have important non-atomic uses, like rare earth elements, lithium, titanium, niobium, etc, should be allowed. Such non-fissile minerals should be deleted from Part B of the first schedule of the Mines and Minerals (Development and Regulation) Act, 1957, which is meant for atomic minerals.

Lack of exploration and a weak focus on mining has seen India’s import bill for minerals and metals touch $157 billion in 2021-22, about a fourth of our total imports. This is likely to go up further as demand rises. As India strives to increase the share of manufacturing in its economy to 25% from 16%, we must expand mineral production through reforms aimed at grabbing opportunities.

Sunil Duggal is chief safety officer and Group CEO of Vedanta Ltd.

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