India - Market Insights

Striving for self-sufficiency

Safeguarding supply: a case of need

The mining sector is a crucial driver and lynchpin of India’s economic development. Considered a “pillar of the economy”, the sector accounts for over 2% of the gross domestic product, employs millions, and feeds heavy industries such as power, steel and cement that are, in turn, vital for overall economic growth. After a period of legal and regulatory uncertainty that had temporarily stymied the sector, a system of electronic auctions for granting mineral rights introduced in 2015 has led to a steady uptick in allocations: a total of 108 mineral blocks were successfully auctioned between 2015 and 2021, while 364 mineral blocks have been successfully auctioned since 2021, averaging about 90 blocks per year.

The introduction of this new regime and the budgetary, legislative, regulatory and fiscal initiatives and developments that have since ensued are characterised by the theme of Aatmanirbhartha or self-reliance.

From a strategic perspective, the drive towards self-sufficiency has emerged in the face of:

• real, threatened and potential external supply shocks resulting from rapidly changing geopolitical circumstances (prime examples of which are the recent war with Iran strangling supplies through the Strait of Hormuz, the sanctions and global geopolitical fallout from the conflict in Ukraine, and China’s decision to restrict exportation of rare earth minerals); and
• the sudden supply chain disruptions and geopolitical challenges arising due to unknowable and unpredictable black swan events, such as the COVID-19 pandemic or the Ever Given container ship blocking the Suez Canal.

The factors are of particular significance to India, owing to its heavy reliance on imports for meeting its mineral requirements (particularly for new and emerging technologies).

Economically, this policy aims to fuel India’s aspirations of sustaining and enhancing its growth with a view to becoming an economic powerhouse, while also making India a global production hub and a key link in global supply chains (an effort paralleled by the semiconductor, defence and other industries).

In this piece, we outline the key initiatives in India’s drive towards mineral self-sufficiency, while outlining challenges that remain and where the industry is moving.

Multi-pronged initiatives

Extending coverage: increasing exploration. The Government of India has amended the Mines and Minerals (Development and Regulation) Act, 1957 to usher in a new exploration framework for an identified set of key minerals (which include cobalt, copper, gold, graphite and lithium). Under this framework, the exploration licensee is entitled to a portion (as quoted by the exploration licensee in the auction pursuant to which it is selected) of the revenue payable to the state government under any mining lease granted in the area explored. A detailed operational framework has been notified to give effect to the law. The new regime is aimed at incentivising exploration of mineral resources, given the earlier dispensation for automatic transition from exploration to mining has been dispensed with. This is of particular concern for deep-seated minerals such as gold, silver, copper, and zinc, which are difficult and expensive to explore compared to surficial and bulk minerals and are resultantly relatively underexplored. Since the induction of this regime, 11 exploration blocks have been successfully auctioned, including in states such as Arunachal Pradesh, Odisha and Uttar Pradesh.

Expanding resource base: offshore mining. In its bid to extend the reach and extent of mining efforts, the Government of India has comprehensively amended the decades-old Offshore Areas Mineral (Development and Regulation) Act, 2002. Despite the law having been passed in 2002, it only came into force in 2010, and no offshore mining has been undertaken. These amendments, which mirror the auction regime for onshore minerals, were made with a view to tap into the significant recoverable resources in India’s exclusive economic zone (including lime mud, construction-grade sand, heavy mineral placers, phosphorite and polymetallic ferromanganese nodules and crusts). A wide-ranging set of procedural rules have been issued over the course of the last two years to effectively operationalise the new dispensation envisaged by the amended law.

Widening footprint: overseas efforts. The Government of India as well as various public sector enterprises (such as National Mineral Development Corporation and Coal India Limited) are actively looking to identify, explore, acquire, develop, mine, process, procure and sell minerals overseas to secure resilient supply of these minerals to Indian domestic industry. In particular, having regard to critical minerals, the Government of India has established a joint venture company, Khanij Bidesh India Limited, which is exploring opportunities to acquire overseas critical minerals like lithium and cobalt in geographies ranging from South America to Australia. Bilateral partnerships are also being actively leveraged to harness and safeguard supplies of vital mineral resources. India and Australia have recently signed a deal to supply uranium from Australian mines for India’s soon-to-be burgeoning nuclear industry.

Critical minerals. A good part of these efforts has been a much-needed focus on so-called “critical minerals”, with a dedicated regulatory and policy dispensation geared towards doubling production of these important minerals in coming years, with a view to reducing import dependency, hastening India’s energy transition (through means of sufficient battery storage capabilities), and shoring up new and emerging sectors/technologies. A key element of the efforts in this respect is an exclusive mandate to the Government of India, rather than the state governments, to conduct auctions for grant of concessions for identified critical minerals (with a view to ensuring their timely conduct). The Government of India has successfully auctioned 56 critical and strategic mineral blocks under this mandate, including for minerals such as graphite, rare earth elements, vanadium, titanium, glauconite, and rock phosphate. The Government of India’s budget for the financial year 2026–27 envisages establishment of dedicated Rare Earth Corridors in the mineral-rich states of Odisha, Kerala, Andhra Pradesh and Tamil Nadu to promote mining, processing, research and manufacturing.

Cause for concern: intervention required

While the efforts outlined above signal a major shift towards ensuring mineral independence, there remain challenges that hamper the industry (notably, no offshore mineral concessions have been granted given tepid industry interest, while a number of mineral blocks put up for auction saw no bidding at all). Two of the primary concerns are those that have also plagued industry and infrastructure: approvals and land.

Developers expend considerable time and effort on bidding for and winning a mineral block, only to face constraints, delays or denial of environmental clearances (which involve multiple and often overlapping applications processes, despite mostly involving the same granting authority). In recent years sweeping verdicts from the constitutional courts barring mining in certain areas have also caught stakeholders on the backfoot (e.g. in the Aravalli Hills, or within a defined boundary of national parks or sanctuaries).

When it comes to land, despite the law empowering mineral concession holders the right to enter upon land to undertake mining (subject to compensating the owner/occupier of such land), in practice, there are a number of challenges faced, not least amongst which are resistance and interference from landowners, often prompting mining lessees to purchase land outright (which can lead to an avoidable increase in costs while also effectively dispossessing minority holdouts). As the auctions begin expanding beyond government lands, these issues will only be magnified.

Another issue is that mineral blocks are delineated by the state government (responsible for auctioning it), rather than bidders themselves, with limited scope for their alteration post auction. As a result, the bidders’ own assessments of the best possible block demarcation (having regard to economic, technical, practical and operational considerations) are not taken into account.

Lastly, India’s rates of royalty are amongst the highest in the world, which, along with the flat structure of the royalty, drives up costs of production and hampers the competitive advantage of Indian miners. The rates of royalty do not incentivise efficiency, economical use of the resources, employment generation or optimum investments. There is no dispensation whereby state governments can offer investors concessional rates of royalty in order to attract investment (similar to the practice in Australia and Canada).

Continuous reform: shoring up the future

Encouragingly, the Government of India has displayed a degree of alacrity in making requisite changes to the law to speedily and responsively address issues as and when they are encountered, with the legal and regulatory framework consistently evolving and responding to the needs and demands of the industry (for example, the Government of India has issued a framework for auctioning mineral blocks with pre-embedded clearances). A similar level of engagement is expected to continue (and this will surely keep practitioners on their toes). These efforts may also be dovetailed into a larger exercise whereby:

• the mining laws are overhauled into a comprehensive mining law code that covers issues such as ownership of mineral resources, land and right-of-way acquisition, freedom to choose blocks, and relaxation of area limits;
• the legislation and executive rules relating to environmental protection are consolidated in a comprehensive code (taking a cue from the Government of India’s earlier successful attempts to consolidate and streamline laws concerning labour, bankruptcy, etc.). In doing so, care should also be taken to restructure and rationalise the approvals process in a manner that avoids overlap and repetition, particularly when the granting authority is one and the same; and
• the Government of India works with state governments to develop a mineral exploration atlas that divides the geography of India into grids:
  • Based on the mineral atlas, applicants should be permitted to freely carve out an area and seek a mineral concession in respect of the same. Such an area may be duly auctioned, while giving the applicant an incentive in the auction process (e.g. a right to match).
  • The atlas should set out predefined “no-go” areas in which reconnaissance, prospecting or mining operations cannot be undertaken. Such areas may be identified based on the presence of reserve forests, sensitive eco-zones, coastal areas, defence land, and the like.

Considering the abundant wealth of mineral resources in India, the mining sector, properly harnessed, has enormous economic potential and can play a crucial role in realising India’s economic ambitions as well as ensuring meaningful employment to India’s growing population. Finally, no piece on the mining sector would be complete without mention of the clear and present threat of climate change in the backdrop of an increasingly capricious global order. The success of India’s mining story will come down charting a path that balances and interlocks the need for climate action and economic growth.