Page 3 - The Mineral Development and Regulation Framework in India (English Version)
P. 3
Discussion Paper
FOREIGN DIRECT INVESTMENT IN MINING SECTOR
Excerpt from Hoda Committee Report
1.13 The huge potential will become clear from the fact that while Australia spends an amount of about US$ 500 million per annum
(US$637 million in 2005) on survey and exploration, Latin America spends an amount of about US$ 700 million per annum
(US$1127 million in 2005), India which has a geological setting identical to both these regions spends only US$5 million
on promotional exploration mainly through GSI and a major part of this is on coal. As a country, Canada has witnessed the
largest expenditure on exploration with 19% of the total world expenditure in 2005 followed by Australia with 13% and US
with 8%. As a continent, Latin America accounted for 23% of the global exploration expenditure followed by Africa (17%).
India’s investment has been less than 1%. In fact, in the last 50 years the total amount spent by GSI on mineral searches is
about Rs 500 crore only and even of this as much as Rs 350 crore has been spent on looking for coal deposits. Experience in
other parts of the world shows that reserves can increase significantly with additional exploration and beneficiation driven by
state-of-the-art technology. Australia’s known iron ore resources increased hundred-fold in 40 years, from around 400 million
tonnes in 1966 to over 40 billion tonnes by 2005 after having extracted over 3 billion tonnes in the interregnum. Given the fact
that in India so far no major investment has taken place in prospecting (RE&DE) the potential for attracting such investment
is very high.
1.14 Therefore, the FDI policy announced in February 2000 was taken as a great opportunity for survey and exploration by global
mining companies both majors and juniors and many foreign companies put in their applications for RPs and PLs. As a result,
until July 2005, 65 prospecting licenses covering an area of 90,143 sq kms. And 196 reconnaissance permits covering
an area of 2,64,520 sq kms were granted mainly in the mineral rich states such as Orissa, Jharkhand, Chhattisgarh, and
Karnataka but also in Andhra Pradesh, Madhya Pradesh, Rajasthan and some others. These concessions were mainly for
minerals of base metals and noble metals, diamonds and precious stones, beach sand minerals and a few for iron ore. Up
to the year 2000 when FIPB clearances (above 50%) were given on a case by case basis, proposals for FDI amounting to
Rs 4,044 crore were reported to have been approved by the FIPB for investment in the Indian mining sector, however, only
Rs 345 crore of the Rs 4044 crore approved by FIPB is reported to have actually come in before January 2000, when 100%
FDI was put on the automatic route. Figures of subsequent year when 100% FDI was put on the automatic route are not readily
available from RBI. What is equally significant is that hardly any of the Reconnaissance permits and Prospecting Licenses
granted under the new dispensation has been converted into Mining Leases.
1.15 The failure of FDI to come into the mining sector even five years after liberalization of the investment regime, the lack of
enthusiasm for investment in prospecting shown by the domestic private sector and the lack of resources with public sector
agencies like GSI, MECL, and other state and central agencies for undertaking promotional exploration has meant that the
sector is unable to contribute to the GDP growth of the country in any significant way let alone up to its potential. This lack
of investment has resulted in the nation’s inability (i) to delineate and extract already located mineral occurrences from the
ground; and (ii) to discover the huge resources of minerals that still are possibly under the ground.
Source: Planning Commission, 2006. Report of the High Level Committee to review the National Mineral Policy and recommend
possible amendments to MMDRA
To induce investment flows, the policy unbundling of reconnaissance, prospecting, and
environment would have to change. The mining activities to maximize private investment.
procedures for grant of reconnaissance/
prospecting/mining concessions would need to The policy would have to require an arm’s length
be made seamless whereas the holders of these to be maintained between the State as a regulator
permits and licenses would need to be accorded and the State as a commercial entity engaged in
security of tenure. The policy should also envisage mining activities.
JANUARY 2015 3
FOREIGN DIRECT INVESTMENT IN MINING SECTOR
Excerpt from Hoda Committee Report
1.13 The huge potential will become clear from the fact that while Australia spends an amount of about US$ 500 million per annum
(US$637 million in 2005) on survey and exploration, Latin America spends an amount of about US$ 700 million per annum
(US$1127 million in 2005), India which has a geological setting identical to both these regions spends only US$5 million
on promotional exploration mainly through GSI and a major part of this is on coal. As a country, Canada has witnessed the
largest expenditure on exploration with 19% of the total world expenditure in 2005 followed by Australia with 13% and US
with 8%. As a continent, Latin America accounted for 23% of the global exploration expenditure followed by Africa (17%).
India’s investment has been less than 1%. In fact, in the last 50 years the total amount spent by GSI on mineral searches is
about Rs 500 crore only and even of this as much as Rs 350 crore has been spent on looking for coal deposits. Experience in
other parts of the world shows that reserves can increase significantly with additional exploration and beneficiation driven by
state-of-the-art technology. Australia’s known iron ore resources increased hundred-fold in 40 years, from around 400 million
tonnes in 1966 to over 40 billion tonnes by 2005 after having extracted over 3 billion tonnes in the interregnum. Given the fact
that in India so far no major investment has taken place in prospecting (RE&DE) the potential for attracting such investment
is very high.
1.14 Therefore, the FDI policy announced in February 2000 was taken as a great opportunity for survey and exploration by global
mining companies both majors and juniors and many foreign companies put in their applications for RPs and PLs. As a result,
until July 2005, 65 prospecting licenses covering an area of 90,143 sq kms. And 196 reconnaissance permits covering
an area of 2,64,520 sq kms were granted mainly in the mineral rich states such as Orissa, Jharkhand, Chhattisgarh, and
Karnataka but also in Andhra Pradesh, Madhya Pradesh, Rajasthan and some others. These concessions were mainly for
minerals of base metals and noble metals, diamonds and precious stones, beach sand minerals and a few for iron ore. Up
to the year 2000 when FIPB clearances (above 50%) were given on a case by case basis, proposals for FDI amounting to
Rs 4,044 crore were reported to have been approved by the FIPB for investment in the Indian mining sector, however, only
Rs 345 crore of the Rs 4044 crore approved by FIPB is reported to have actually come in before January 2000, when 100%
FDI was put on the automatic route. Figures of subsequent year when 100% FDI was put on the automatic route are not readily
available from RBI. What is equally significant is that hardly any of the Reconnaissance permits and Prospecting Licenses
granted under the new dispensation has been converted into Mining Leases.
1.15 The failure of FDI to come into the mining sector even five years after liberalization of the investment regime, the lack of
enthusiasm for investment in prospecting shown by the domestic private sector and the lack of resources with public sector
agencies like GSI, MECL, and other state and central agencies for undertaking promotional exploration has meant that the
sector is unable to contribute to the GDP growth of the country in any significant way let alone up to its potential. This lack
of investment has resulted in the nation’s inability (i) to delineate and extract already located mineral occurrences from the
ground; and (ii) to discover the huge resources of minerals that still are possibly under the ground.
Source: Planning Commission, 2006. Report of the High Level Committee to review the National Mineral Policy and recommend
possible amendments to MMDRA
To induce investment flows, the policy unbundling of reconnaissance, prospecting, and
environment would have to change. The mining activities to maximize private investment.
procedures for grant of reconnaissance/
prospecting/mining concessions would need to The policy would have to require an arm’s length
be made seamless whereas the holders of these to be maintained between the State as a regulator
permits and licenses would need to be accorded and the State as a commercial entity engaged in
security of tenure. The policy should also envisage mining activities.
JANUARY 2015 3
