It’s action time for Indian mining

Thanks to recent policy initiatives, there are many opportunities to be tapped

The domestic outlook for metals is expected to be robust. Demand growth is expected from all end-use segments.

The construction sector is expected to remain buoyant due to increased demand for real estate and infrastructure projects propelled by urbanisation. Initiatives launched by the government such as Housing for all and Smart Cities as well as schemes such as Pradhan Mantri Awas Yojana and Sansad Adarsh Gram Yojana will help build momentum for all metals (for example steel-intensive structures, pre-fabricated and pre-cast steel structures, etc.) The bottlenecks that impede infrastructure development are being addressed.

Further, the Make in India policy will result in significant investments in the construction, ship-building, power, defence sectors, etc., entailing high usage of steel and base metals. The auto industry, already witnessing strong demand growth, is expected to maintain momentum for several years to come.

The national smart grid mission, to reduce transmission losses, inter regional power transmission projects sanctioned under the power system development fund (PSDF) and various other government projects are expected to drive demand for aluminium and copper. Growth in EV is expected to result in demand for copper consumed in batteries.

Thus several metals, both ferrous and non-ferrous, are expected to have strong demand growth in future which, in turn, will drive demand for minerals.

With the domestic market showing huge opportunities, the metal players/industry would like to ensure raw material availability in areas wher it is possible. The country is self-sufficient in iron ore and bauxite but needs to import coking coal, copper concentrate and many others. Investing in exploration and mining thereafter will help reduce dependence on imports and ring-fence the players from the increasing price volatility that global commodities have seen in the recent past.

The mining industry in India is undergoing significant change but yet waiting for transformation. Globalisation continues to define the overall business landscape with almost all countries being highly interdependent through investment, financial and physical flow of trade.

The Indian mining sector also is influenced by various global trends, prices, currencies and trade flows. However, purely on the domestic front, the mining industry has experienced negative/slow growth and shrinking margins largely arising out of governance challenges, production caps, fiscal measures, cost escalations, mine closures and demand slowdown.

The Central government, influenced by judicial pronouncements, initiated a complete transformation in the mining sector with several legal and executive actions. There have already been multiple enactments and procedures since 2015. While the initial response to the coal mining leases auctions was characterised by exuberance on the part of the players, it has now translated into a cautious mood given the conditions prevailing on the ground.

The government is aware of the key challenges of the mining sector and is keen to generate growth in the mining sector. To get success in these ambitions, steps need to be undertaken around the following themes:

Exploration of minerals has considerably lagged the mineral potential of the country. The exploration activities need to be broadbased, engaging the experts who can supplement the domestic entities with expertise, technology and experience.

Quite often mining has been at a crossroads with the environmental responsibilities and has been facing production caps. If the significantly high levels of demand were to be met, the stakeholders would need to build consensus on achieving much higher production levels within the country to maintain resource security.

The margins in the mine to market value chain have shrunk significantly over the last few years. The high price environment earlier was an incentive to take significant risks.

However, with the competitive auction model for mining leases, the government (Central and States combined) are the largest beneficiaries of the financial flows, going forward.

That calls for an even more matching contribution by the State to create the enabling infrastructure, facilitate environment management and integrated sustainable development. This needs a change in mindset from several stakeholder groups.

The policy framework should also try and work on conserving access to the resources by clearly identifying high mineral potential zones, demarcating them for mining industry, creating the infrastructure and other investments for the business to succeed.

The presence of global mining players has been negligible — something the government should consciously strive to balance to bring in competitiveness, leading practices, etc.

Mining, like any other business, goes through cycles and transitions. Mergers, acquisitions, divestitures, restructuring are quite common in business, world over. Studies reflect that post these, the businesses generally emerge stronger or transition into stronger hands. Hopefully, the policy will move towards freely allowing such business needs to be fulfilled without a fiscal penalty.

The mining industry has immense future growth ahead but will need an enabling environment to be created through policy measures.

While the government and industry participation in this dialogue should continue, the industry also must impose upon itself stronger governance standards that make the business sustainable over the long run.

The writer is Partner and National Leader – Metals and Mining, EY. With inputs from Viraj V Manvatkar

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