India Desperately Needs the Mining Industry

For the last several decades, the Indian government has announced one mining policy after another. After each change, ministry officials go around international conferences boasting about how India is opening up. The devil is always in the details. And the details are never thought out.

Policies are utopian, unrealistic, distant from ground realities, and based on the belief that the investor must trust India’s “benign and honest” governance. There is always a provision to change the government’s implementation in “the interest of the greater good.”

No wonder despite that India has immense potential for mining, it is a too-constrained industry, mostly focused on iron ore and coal, and ridden with the mafia. Despite extensive resources in the ground, which have no value unless they are extracted, India still depends on imports.

Having high hopes is good, but India is a poor country with a mostly unskilled populace. It is where China was twenty years back. What fails to grasp the Indian government’s psyche is that employment for most Indians will not be in high-technology. By its very definition, high-technology is not employment-intensive. Despite that China has a sizeable high-technology industry and an economy five times that of India, China understands that to generate employment for the masses, low-value adding jobs is necessary. Even wealthy nations like Canada and Australia put a considerable emphasis on the mining industry.

For tens of millions of Indians entering the work-force, the industries that can utilize their limited skills are agricultural, mining, and low value-added manufacturing.

Sixteen years back, a mining company sent me to India to look for opportunities. While the regulations looked idealistic, everything had its Catch-22 situation.

Selling of a property to another operator needed to go through the government with a risk that the property might get expropriated, the thinking being that if the current owner didn’t want to operate, he could as well return it to the government. The mining industry worldwide clearly understands that finding a project, exploring it, developing it, and mining it requires very different competencies. Not only the regulations failed to understand the need for a project to keep changing hands, they assumed that any good-hearted person would not be looking for a profit. Not that government employees do not want their salaries (and bribes), but it is just that they want to see a higher purpose in other people and be sacrificial lambs.

There were many other problems. Getting a reconnaissance permit should have been easy, but this took years, longer than what it took the rights on the property to lapse.

The authorities wanted to give permits not based on whether the requirements have been satisfied but on how much value addition would occur within their jurisdictions. Their entangled thinking and absence of economics and how businesses are run made it impossible for any entrepreneur to get started.

For the last few years, a policy to auction off projects has come up. Exploration geologists identify projects. If their only option is to participate in auctions, the exploration process is pre-empted. The idea of auctioning isn’t about creating a level-playing field that it is made out to be. It is about extracting the maximum possible tax from companies at a very early stage. Quite in contrast, staking a project in Canada is very inexpensive. Moreover, the Canadian government offers massive tax-reducing opportunities to recognize the need to invest first in exploration.

India’s auction system attracts a minimal number of investors, who are incentivized to maximize short-term profit. This system does not bode well for the environment, employment, and the continuation of mining.

Despite having among the most abundant coal and iron ore resources, India has imported them for many years. Implicit in the government’s thinking—a sign of their petty-mindedness—is that unmined minerals are somehow preserved value.

The government has kept entrepreneurs out of mining, relegating it to be run at a loss by the public sector, those politically connected, or the mafia. The cost to the environment and the locals has been terrible.