Last year, India shipped around ten million tonnes of iron ore to China, every month. China's growing appetite for raw materials has had a transformative impact on the world's commodity markets. In India, its hunger for iron ore has made millionaires. Some of them, as the illegal mining scam in Bellary, Karnataka has suggested, have gotten rich quick by taking advantage of soaring prices, lax regulation and the rights of local communities.
As the mining industry grew unchecked to cater to Chinese demand, regulatory systems were left “overstretched and at breaking point,” admits Mines Secretary S. Vijay Kumar.
In September, the Union Cabinet approved a landmark Mines and Mineral Development and Regulation (MMDR) Bill, which mandates greater profit-sharing to benefit project-affected communities and tighter regulation.
In an interview with Ananth Krishnan during a visit to China early this week, Mr.Vijay Kumar argued that the bill would clamp down on illegal mining but at the same time promote investment and exploration. He also spoke about the dramatic impact China's growth has had on India's mining industry. Excerpts.
The new mining bill will put in place a tighter regulatory framework to clamp down on illegal mining. But does the Ministry of Mines have the capacity to enforce rules on the ground, considering, as Karnataka has illustrated, how widespread and entrenched the problem of illegal mining is?
You are absolutely right in that the current regime of mining is bedevilled by regulatory practices which have not been able to keep pace with the expansion of mining consequent on Chinese demand.
Production increased rapidly between 2004 and 2010, but the regulatory capacity did not increase. Therefore, the regulatory systems are overstretched and at breaking point.
In the new act, we are proposing to have two independent regulatory systems. One independent regulatory system would be in the form of a mining regulatory authority, which would be responsible for general good governance and standards.
It would be equally applicable to those who are doing mining, or those who are doing exploration, and so on. The other would be a mining tribunal.
The mining tribunal, unlike a regulatory authority, would be quasi-judicial, where only people who are aggrieved by a decision would be able to go. In one sense, it is like a court, but it is a specialised court meant only for mining-related matters, so it is within the ministry as a quasi-judicial authority. It would look at two types of issues.
One is if there are delays in decision-making. The other is if the decision-making in content is in some way erroneous or wrong. Mining tribunals would have the ability to look at the decision and either uphold it if it is right, or quash it if it is wrong.
According to reports, we have had more than 10,000 cases of illegal mining in the past decade alone. Is it possible to address and resolve them all considering the scale of the problem?
Right now, within our ministry, we have quasi-judicial cases which are being looked at. It is being done by the ministry's own officers.
The idea is that instead of the ministry's own officers doing it [an independent authority now will], because in one sense it is not really an independent process as they were participating in the decision-making. For the same ministry which participated in decision-making to also then sit on judgment over the same decisions seems a little anomalous, so we are actually changing it and saying that we will get a third party, an independent authority.
India's exports of iron ore have driven trade with China this past decade, and in some ways have defined the larger trade relationship. Some companies have complained that the taxation structure under the new mining bill is much higher than in a number of countries, including Brazil and China itself. Will the tax derail trade with China and make exports less competitive?
I don't believe that iron ore exports have defined our trade relationship. It is, of course, one of the items of export.
There is a commonality here which was a natural commonality because China could use certain grades of iron ore, whereas we were not using those grades because we did not have the pelletisation capacity. Our sintering capacity was already completely used up by domestic supplies.
Therefore we needed to export, they needed to import. And that is how that trade developed. As we go forward and our own capacity to use iron ore increases, because the new steel policy that is on the anvil is likely to project production of around 200 million tonnes per year of steel by 2020, obviously our export surplus will dwindle to that extent. What we really need to do is to find ways of ensuring that we add value to our minerals. In value-added form, we could continue an export relationship. We would be quite happy with that.
I don't think it is proper to compare taxation regimes of the two countries [India and China]. It is only in relation to the finished product that you can compare, or in relation to the export prices. In case of iron ore, certainly whatever the tax rate may be, the fact remains that it is still quite remunerative and profitable for miners to export iron ore. The fact that the tax rate is still a certain level in no way disincentivises exports.
I think there is more than sufficient margin for the miner today to export, though of course you are right that there is an export duty that has been imposed on both lumps and fines. But that is more to mop up surplus. We believe it is possible for an intelligent miner to still make a lot of money.
What interest have you had from China during your visit here this week, either in directly investing or in cooperating on exploration projects and sharing technology?
We said we are very happy. BEML has now come here [to launch sales of mining equipment].
This is a great opportunity and we see this as part of a larger framework of closer cooperation in mining and mining-technology related subjects with China. Both India and China are growing economies with increasing use of raw materials. This requires both countries to do more and more surveys, more and more exploration, more and more mining.
The Chinese Vice Minister [of Land and Resources, Wang Min] and I agreed there is scope for collaboration in survey and mapping, geophysics and geochemistry, in value-addition including pelletisation.
I suggested pelletisation is one area in which China has some technological knowhow that would be very welcome in India.
He welcomed this suggestion. But we also said we welcome Chinese investments in India, particularly in mining equipment technologies. We do realise it is a two-way process.
The new mining bill has also introduced new rules on profit-sharing, for 26 per cent to go to project-affected local communities. Some have said this isn't enough, while industry groups, like CII and FICCI, have said they are worried this will deter investment.
I had a meeting with the Bank of Montreal. [A representative of the bank] says with these reforms, definitely foreign capital, particularly exploration companies, will come in droves.
The reason is firstly, the new act makes the grant of concessions much simpler and quicker. It makes it more transparent.
It also allows licenses to be freely traded. So a late-stage exploration company can buy up a licensee who has spent time acquiring the license. It will incentivise more venture capital flow into the sector. We expect that mining activity will increase massively over time.
