FDI in mining trickles to $36 mn in FY18

Foreign direct investment (FDI) inflows in the mining sector have hit the slow lane. After touching a peak of $659 million in 2014-15, the inflows into the sector tanked to $36 million at the end of FY 201718.

As a share of the overall FDI drawn by the country, the mining sector’s contribution has shrunk from 2.06 per cent to 0.08 per cent during the period.

According to Centre for Monitoring Indian Economy (CMIE) data, the mining sector’s slump in drawing FDI is comparable to 2013-14 when only $13 million investment came in with a measly share of 0.05 per to the total foreign inflows.

From 2013-14, the inflows soared but since then it has been a free fall. Though the government has approved 100 per cent FDI for the mining sector under the automatic route except for fuel minerals, atomic minerals and precious stones like diamonds, the inflow has not caught up with the boom in other sectors such as communication services, financial services, retail & wholesale trade.

In its annual report, the Reserve Bank of India (RBI) projected the country as a strong investment destination, driven by a robust consumption demand and momentum gained by the manufacturing sector. The country received $37.3 billion capital inflow in last fiscal, marginally higher than $36.3 billion in FY17. According to the UNCTAD (United Nations Conference on Trade and Development) Investment Trends Monitor 2018, India was the 10th largest recipient of global FDI in 2017.

But the mining sector seems to be divorced from the FDI growth story. A mining industry source blamed it on the miniscule investments in mineral exploration and lack of enabling provisions for foreign investors in the exploration policy.

“Only one per cent of India’s Obvious Geological Potential has been converted into mineable assets. This is due to a poor scale of exploration hamstrung by inadequate funds. The country has not emerged as a favoured destination for global explorers with just around 0.6 per cent of the exploration budget as compared to 14 per cent for Canada and 12 per cent for Australia,” the source said.

“India’s exploration expenditure is almost insignificant in comparison to other nations, even though India stands among the leaders in being rich in a variety of minerals. Limited focus by the Indian government on exploration of minerals, with high taxation rates, as high as 64 per cent, amongst the highest globally, are one of the factors leading to a fall in FDI inflow in this sector in India,” a report by CARE Ratings says.

The effective tax rate on mines granted before the new Mines and Minerals (Development & Regulation) Act, 2015 is 64 per cent while for mines won through auctions, it stands at 60 per cent.

On a comparative note, the ETR for Mongolia at 31.3 per cent is half of India's. Other mineral rich nations also boast of attractive ETR rates— Canada (34 per cent), Chile (37.6 per cent), Indonesia (38.1 per cent), Australia (39.7 per cent) and South Africa (39.7 per cent). Countries competing for mineral sector investments usually offer ETRs in the range of 40-50 per cent.

Even the new mineral exploration and licensing policy 2016 has failed to cut ice with the foreign investors. The policy is still wanting in tax incentives for explorers and does not offer an investor the grant of prospecting license or a composite license (PL cum mining lease).

Though the government has approved 100% FDI for the mining sector, the inflow has not caught up with the boom in other sectors