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FDI in Indian Mining & Minerals Industry

Mining and minerals industry in India is one of the sectors which attracts the highest Foreign Direct Investment (FDI). All the investments including FDI in the Indian mining and minerals industry were earlier governed by the Mines & Minerals (Development & Regulation) Act or MMDR Act, 1957. But realizing the tremendous growth potential and opportunities in the sector in 1999, the policy was changed to liberalize and encourage the investments in the mining and minerals industry.

When the ill effects of the restrictions imposed by the old policy came into limelight, a new policy for the mining and minerals industry - National Mining Policy - was formulated by the Ministry of Mines.

By raising the level of domestic and foreign direct investments in the sector to Rs 1,00,000 crore, this new policy aims at promoting growth of this sector. It also plans to create employment for about five lakh skilled and unskilled labour force in the industry which currently employs 1.1 million people.

The highlights of the policy are:

The limit of FDI has been raised to 74% for the exploration and mining of diamonds and other such precious stones.
For gold and silver mining, 100% FDI is permitted.
100% FDI is also allowed for metallurgy and processing.
For those who have / had an earlier agreement or joint venture in the mining of different minerals, sanction of automatic approval for FDI comes without much procedural tangles.
In the case of power projects initiated by private Indian players, FDI limit will be 100%. Similarly, no FDI cap will be followed for coal and lignite mines set up by private companies for captive consumption.
100% FDI is allowed for setting up coal processing plants subject to the condition that the company should not be engaged in coal mining.

On April 24, 2000, the Coal Mines (Nationalization) Bill, 2000 was introduced in the Parliament opening the sector to private investment in coal and lignite mines with certain conditions.

The ministry of mines is now looking forward to lift all the remaining restrictions as well, so as to encourage joint ventures with overseas players and thus attract more inflow of foreign investments in the industry. Joint ventures will ensure healthy developments in the sector since good technology and funds brought in by the foreign player and the knowledge of the Indian player about the local issues can be combined. The government is also encouraging Research & Development (R&D) to boost the competitiveness in the mining and minerals sector.

The present flow of FDI into the Indian mining sector is measly $150 million. With the target of attracting Rs 1,00,000 crore as FDI in the next two years, the government is also planning to lift the restriction on foreign players which forbids them to work with multiple domestic players.

According to Mining secretary A K D Jadhav, the government is also contemplating to give the mining sector the status of an industry. This status will help it to acquire funds from financial institutions and banks easily.

The government of India, in its attempt to seek optimal growth and development of the country's resources, is also seeking cooperation from other countries, like the Memorandum of Understanding (MoU) for cooperation in the fields of geology and mineral resources.

As per available facts, India still has 85 billion tonnes of mineral reserves which are yet to be exploited. Therefore, encouraging FDI in the sector can prove to be crucially important for the development of the Indian mining and minerals industry.

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FDI in Indian Mining & Minerals Industry