FOR an economy growing at between eight and nine per cent per annum over the past few years, India indeed has a huge appetite for minerals. But unlike China, the other major economy in the world, growing at such a brisk rate (in fact double-digit rates), India has not done much about meeting its requirements.

China, for instance, has been busy in Africa, Australia and South America, acquiring leasing rights over mines, setting up joint ventures and exploring for new mines to ensure adequate supplies to meet its gargantuan hunger for minerals.

India has been rather slow in taking such a pro-active stance. But now that global commodity prices have soared to record levels, the country is feeling the pinch. The United Progressive Alliance (UPA) government, which deferred the introduction of its ambitious New Mining Policy (NMP) for over two years following bitter squabbles with many of the mineral-producing states, finally took the plunge recently and introduced it in Parliament.

Expectedly, the move has come across a barrage of opposition, especially from half a dozen states that account for the bulk of the nation’s mineral assets. Left and other parties are also likely to oppose the new policy, which envisages a major role for private, including international, players.

India has a sprawling, two-million-sq km of mineral area, which has enormous reserves of nearly 90 kinds of minerals. Four are fuel minerals, 11 are metallic, 52 non-metallic ones and 22 minor minerals.

The most important mineral for the country is coal (reserves of over 275 billion tonnes), which accounts for a bulk of the mines in the country, and also fuels the nation’s energy requirements. Another equally important mineral is iron ore; reserves of 23 billion tonnes have lured international steel majors, including Arcelor Mittal, owned by UK-based Non- Resident Indian (NRI) businessman Lakshmi Mittal, and South Korea’s Posco.

India also accounts for about 10 per cent of the global bauxite reserves (at nearly three billion tonnes) and has nearly 15,000 tonnes of gold reserves. But the country produces a mere three tonnes of gold every year. Other minerals in India include copper, lead, zinc and uranium.

Traditionally, mining has been dominated by public sector giants, most of which are run inefficiently and mismanaged , thanks to political interference. Besides notching up hefty losses, most of these companies failed to deploy state-of-the-art technology, and have not been able to exploit the mineral wealth.

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THE NMP seeks to address these deficiencies and boost the fortunes of the mining sector, which today accounts for less than three per cent of the gross domestic product (GDP). The government hopes to push this to about five per cent of GDP over the next five years.

Growth of the mining sector has also been slow, as compared to services and manufacturing. For the quarter ended December 31, 2007, GDP expanded by 8.4 per cent (9.1 per cent in the corresponding quarter of the previous fiscal), but the mining sector saw a sluggish growth of 4.9 per cent (6.1 per cent). Services grew by 11.6 per cent (14.7 per cent) and manufacturing by 9.3 per cent (11.3 per cent).

The NMP expects a huge inflow of foreign capital into the sector. According to T. Subbarami Reddy, the minister of state for Mines, the new policy is likely to attract foreign direct investment (FDI) of about $2 billion every year over the next five years. Half a million new jobs are also expected to be created, thanks to the investments.

Last year saw an inflow of about $400 million in FDI into the mining sector, which was a massive 1,000 per cent jump over the previous year’s figures. Reddy expects $250 million of investments in gold and diamond mining alone. “The consumption of gold is at an all-time high in India,” says Reddy. The government has taken a constructive approach to fuel growth in the mining sector and is looking to open investment in gold mining.”

One of the highlights of the new policy is that a prospecting company will automatically be able to get a mining licence. The new policy also envisages the establishment of a tribunal to resolve disputes, especially between states and the investors.

The policy also aims to cut down the time taken to grant mining leases to less than a year. At present, the process drags on for a few years.

The most contentious issue, however, is the one relating to sharing of revenues, and the new policy has tried to avoid addressing it directly. State governments where mines are located want royalties based on the actual value of minerals (ad valorem), and not a flat rate as at present. This could result in a sharp spurt in royalties, which the central government fears, could discourage foreign investors.

Orissa chief minister Naveen Patnaik, whose party is a constituent of the BJP-led National Democratic Alliance, has come out vehemently against the new policy. Patnaik accused the central government of pandering to multinationals and being influenced by the international mining lobby.

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ANOTHER bitter issue that could delay the implementation of the NMP relates to the pre-requisite of value-addition within a state where the mining right is to be granted. Many of the multi-billion-dollar projects by international firms have got delayed because of the insistence by state governments that the investors set up steel plants within their state after mining the iron ore, instead of exporting it elsewhere.

The central government wants to snatch away the veto power of state governments while issuing licences; most state governments want value-addition, and refuse to grant licences to companies that do not commit to set up manufacturing plants.

The central government does not want states to cancel applications for renewing mining lease, just because the company has not invested in value-addition. Hence, the proposed system of seamless licencing.

The new policy also allows investors to trade the mineral licences, especially after prospecting. The government expects this major change to attract about a dozen global mining majors, who are keen on prospecting, but would not want to invest in mining.

But looking at the opposition from mineral-rich states like Orissa, Chhattisgarh, Jharkhand, Rajasthan and Madhya Pradesh – most of which are currently ruled by the BJP and its allies – the centre wants to thrash out the differences over the coming weeks.

Orissa chief minister Patnaik is critical of the government’s policy of insisting that mining rights be given to companies despite their refusing to commit value-addition in the states. “This is a deliberately, short-sighted policy,” he says.

However, the US-educated (and usually pragmatic) Patnaik harks back to the pre-reforms era, when he demands that the centre should not allow private players into exploiting minerals, which are the nation’s wealth. According to him, the new policy undermines the role of the public sector, while ensuring a large say for the private sector.

Interestingly, in the midst of this raging row between the centre and the states, many African nations are urging India to invest in mining assets in the continent, just as China has been doing in recent years.

Top government leaders from several African countries urged the Indian government and businessmen to invest in mining sources in the continent, at an India-Africa partnership conclave held recently in Delhi.

Representatives from Congo, Mozambique and Zambia, among others, pointed out that there was ample scope for investments in the mining sector. Indian companies, including state-owned majors and private sector groups like the Tatas, have been scaling up their investments in Africa in recent years.

Similarly, Australian officials have also been urging Indian companies to prospect for minerals. Mike Rann, the prime minister of South Australia, told Indian businessmen last week that there were huge opportunities in his region for mining copper, uranium, gold, zinc and zircon.

India’s public sector mining major, NMDC Ltd, is already toying with the idea of acquiring iron ore assets in Australia, Brazil and Canada. According to Rana Som, chairman, NMDC, the company has got offers from these three countries, and talks are in progress.

The state-owned unit, which accounts for 15 per cent of iron ore production in India, aims to invest about $250 million in overseas acquisitions every year. Other Indian firms are also looking at similar acquisitions, to meet the growing demand for iron ore, coal and other minerals.