Central Idea

India’s Parliament recently passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023.
This bill aims to encourage private sector participation in mineral exploration and mining, thus addressing import dependencies and supply chain vulnerabilities.

Provisions of the Mines and Minerals Bill 2023

Expanding Exploration Rights: The Bill allows private sector engagement in the exploration of critical and strategic minerals previously reserved for government entities.
Exploration Licenses (EL): The Bill introduces a new type of license, EL, for private exploration activities. Exploration licenses will be granted through competitive bidding and will be issued for specified critical, strategic, and deep-seated minerals.
Revenue Model: ELs aim to generate revenue through a share of the premium paid by the miner after successfully auctioning a mined deposit.

Critical minerals are elements that are crucial to modern-day technologies and are at risk of supply chain disruptions.

Recent categorization: Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium are among the 22 assessed to be critical for India.
Global Supply Chain Vulnerabilities: The global supply chains for various commodities, including critical minerals like lithium, cobalt, graphite, and rare earth elements, have been shown to be susceptible to shocks, leading to shortages and rising prices.
Impact on Various Sectors: Critical minerals are essential for manufacturing, infrastructure development, and clean energy transitions. They are crucial for electric vehicle batteries, semiconductors, wind turbines, and other technological advancements.

Import Dependency: India heavily relies on imports for critical and deep-seated minerals, such as lithium, cobalt, nickel, and rare earth elements.
Supply Chain Disruption: The concentration of extraction and processing in a few geographical locations, like China’s dominance in cobalt and rare earth elements, can lead to supply chain vulnerabilities.
Projected Demand: A World Bank study anticipates a nearly 500% increase in demand for critical metals like lithium and cobalt by 2050.

Mineral Security Partnership (MSP): Major economies like the U.S., UK, Japan, and the EU have established the MSP to ensure supply chain resilience for critical minerals. India joined this partnership to secure access to these resources.
Strategic Lists: Countries are compiling lists of critical minerals based on their economic needs and supply risks, aligning with their industrial strategies. This aims to secure stable access to these resources.

Exploration and Mining: Mineral exploration is a multi-stage process, from reconnaissance to detailed exploration, before actual mining. India’s exploration efforts have been led by government agencies with limited private-sector involvement.
Resource Potential: India’s geological setting holds potential for mineral resources similar to mining-rich regions. However, only a fraction of its obvious geological potential has been explored.

Incentives and Risks: Private sector involvement in exploration requires substantial investments and carries inherent risks, making it necessary to create favourable conditions and incentives.
Revenue Generation Delays: Private explorers’ primary revenue source is a share of auction premiums, contingent on successful mine auctioning, which can take considerable time due to government clearances.
Auction Process Challenges: Auctioning ELs before exploration begins raises uncertainty regarding future revenue and value estimation.
Supreme Court Ruling: The Supreme Court’s 2012 ruling emphasized the significance of secure utilization of explored resources, which the new policy does not guarantee.

The recent legislation signals India’s commitment to attracting private sector investment in mineral exploration.
However, challenges such as revenue uncertainty, the auction method’s suitability, and the need for efficient mechanisms to incentivize private participation need careful consideration.
Balancing the interests of the private sector, resource availability, and the nation’s strategic goals will be pivotal for the successful implementation of these policy amendments.