How Indian minerals and metals fare in trade and FDI
The article has been authored by Rajesh Chadha, a senior fellow along with Ishita Kapoor, research analyst, Centre for Social and Economic Progress (CSEP), New Delhi.
India has a rich inventory of mineral resources and knowhow of metallurgy, producing 95 minerals, including 10 metallic and 23 non-metallic. India is a major producer of bauxite, iron, and zinc ore, ranking in the top five producing countries. Within industrial metals, India ranks second in terms of crude steel production, despite its share in the world at 5.6%, and ranks as the fourth-largest producer of aluminium (primary), lead (refined), and zinc (slab).
India is a net exporter of iron and zinc ores. On the other hand, it is a net importer of bauxite, manganese ore, copper ore, lead ore, zinc ore, magnesite, apatite, rock phosphate, metals and their alloys such as aluminium copper, iron and steel, lead, and zinc. While India has an expansive set of mineral resources and reserves, the exploration and mining potential has not been optimised due to impediments to investors for exploration.
India is self-sufficient in many minerals such as bauxite, iron ore, and zinc ore but deficient in some major minerals, such as magnesite, manganese ore, copper ore, lead ore, and rock phosphate, imported to meet domestic demand.
India levies custom duties on imports of minerals, metals, and metal products. Minerals are generally less protected than their corresponding finished products. For example, the most-favoured-nation (MFN) import duty on bauxite is 2.5%, whereas, on aluminium metal and its products, the duties range from 3.9 to 9.8%. In the case of iron and steel, the MFN import duty rate on iron ore is 2.5%, while the iron metal and steel are protected between 7.5 to 10%. However, limestone is protected at a higher rate of 5% compared to its final product, cement, at 3.2%.
While the MFN import duty is a nominal indicator of protection granted to a mineral or metal, the corresponding effective protection may be lower or higher depending on how the tradable inputs going into its production are protected in weighted average terms. The effective protection granted to a mineral or metal is lower than the nominal if the bundle of tradable inputs required for its production is protected at a higher rate than that of the mineral or metal and vice versa. The effective protection rate on iron ore is lower than the corresponding nominal rate. Manganese ore, bauxite, copper ore, limestone, mica, cement and non-ferrous basic metals also have a lower effective rate of protection than their nominal protection rate.
On the other hand, the sectors including structural clay products, iron and steel casting and forging, and iron and steel foundries have higher effective protection than the nominal applied tariffs as their inputs are protected at lower rates.
India levies export tariffs for certain minerals such as iron, manganese, and bauxite. As of 2021–22, there is an ad valorem tariff of 30% on the export of iron ore, bauxite, and other aluminium ores. In the case of manganese ore, a specific export tariff of ₹20 per tonne is applicable. In addition, exports of certain iron and steel products are restricted with an ad valorem tariff of 20%. These export tariff rates have not changed since 2015–16.
In 1994, the mining sector was opened to private domestic and foreign investors to explore and exploit iron ore, copper, manganese, lead, chrome ore, zinc, sulphur, molybdenum, gold, tungsten, diamond, and the platinum group of minerals. The investment proposals were considered case-to-case until 1997 when the automatic approval route through the Reserve Bank of India (RBI) was introduced. In 2000, the mining sector was opened up to 100% Foreign Direct Investment (FDI) through the automatic approval route. Many foreign companies entered India till 2010. However, India’s mineral exploration came to a near-complete halt after 2010, as none of the states issued exploration licences—Reconnaissance Permit (RP) and Prospecting Licence (PL)—to any company till introduction of the new Mines and Minerals (Development and Regulation) Act, 2015 (MMDR).
The total FDI in the mining sector has been about US$ 3 billion from April 2000 to September 2021, about 0.54% of 561 billion total FDI inflows during this period, which is abysmal given India’s mineral endowments. Moreover, India has not proved to be an attractive FDI destination. Rio Tinto exited in 2017 from the Indian mining sector, abandoning its well-explored Bunder diamond mines project in Madhya Pradesh. Additionally, India has consistently performed poorly on the Annual Survey of investment attractiveness to investing mining companies conducted by the Fraser Institute and dropped out since 2017 due to insufficient participation. The Survey ranks the investment attractiveness of major mining jurisdictions based on their policy potential, mining potential, best practices in the sector, and investment attractiveness.
With the Atmanirbhar Bharat Abhiyan (self-reliant India campaign), the central government aims to unlock the mining sector’s potential and attract more investment through transparent and internationally competitive policies. Accordingly, certain amendments to the MMDR Act 2015, are under consideration by the government. One of the measures introduced the composite exploration and mining regime to motivate the private sector to invest and explore. Another measure removed the distinction between captive and non-captive mines to allow easy transfer of mining leases. These changes are expected to improve mining efficiency and promote investment in the sector. Finally, 500 mining blocks would be offered through the auctions process inviting investment into the sector.
The government has also been engaging with mineral-rich countries to access the latest technologies for exploration and mining. It has entered into bilateral agreements with countries like Afghanistan, Australia, Bangladesh, Bolivia, Brazil, Chile, China, Columbia, Finland, Morocco, Malawi, Mali, Mozambique, Peru, United Kingdom, Zambia, and Zimbabwe. In addition, the Khanij Bidesh India Limited (KABIL) is pursuing engagements with Argentina, Bolivia and Chile (ABC), Australia, Russia, Canada and the United States. The recent Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) is an example of a strategic bilateral partnership. The AI-ECTA shall facilitate Australian firms to provide high-quality mining technology, equipment and services to the Indian miners along with their expertise in exploration, environmental preservation, skills and mine safety.
The article has been authored by Rajesh Chadha, a senior fellow along with Ishita Kapoor, research analyst, Centre for Social and Economic Progress (CSEP), New Delhi.