UNIQUE CHALLENGES FACED BY THE INDIAN MINING INDUSTRY
INDIA’S domestic minerals sector has been a significant participant in the global mining industry. While for several minerals India has among the largest resource bases and production, for some others it is emerging as a demand driver of the global mining industry. As a result of increasing integration with global trade, the price discovery in the industry is more aligned with industry-wide trends, thus subjecting the sector to global risks, opportunities and competitive pressures.
Thus, most of the drivers of digital adoption also apply to the Indian mining sector, for example, mine productivity, cost optimisation, safety and social licence to operate. However, the Indian mining sector is also exposed to several additional challenges and opportunities as follows:
The Indian minerals sector lacks a strong growth momentum in key categories. Over the past few years, mineral production has been impacted by mine closures on account of judicial/regulatory affairs and lack of new mine allotments. Despite a vast natural reserve base, the sector accounted for only ~2.6 per cent of the GDP in FY16. India has witnessed a fall in output of iron ore from its peak and continues to import some high-value items such as gold and copper concentrate. The coal sector, however, has achieved accelerated production growth.
The mining industry has a massive unexplored potential largely due to low exploration budgets and limited participation of the private sector in the past. The presence of global mining majors or exploration community is low or declining.
Productivity remains a major concern with miners. Given that open cast mines are ageing and ore grade is declining, miners will need to augment output from underground mines, efficiently.
Infrastructure is a great value creator for the mining industry. The Indian mining industry has generally struggled with constrained infrastructure availability, particularly roads/railways and port connectivity, which is a major impediment to access and development of mining areas, and mines-to- market logistics.
REGULATIONS AND GOVERNANCE
India’s regulations and complex procedural requirements for the mining sector are not the greatest examples of certainty, clarity and efficiency when benchmarked with global peers.
Several projects have been abandoned due to delays in acquiring land and obtaining environmental and forest clearances. Relatively higher taxation levels have burdened the industry with a structure that is not globally competitive. Despite the 100 per cent FDI route, the mining sector has witnessed restricted FDI inflows and engagement by global mining players. On the other hand, fraud and corruption challenges continue to plague the industry, though only few players may be involved.
PRICE AND CURRENCY VOLATILITY
Like most commodity businesses with a significant global trade flow, Indian miners have to follow global price trends, which have been extremely volatile. Such volatility creates immense stress on the cash flows and profitability of the players. This is particularly relevant as prices of most minerals are referenced in US dollar terms while most costs are in Indian rupee.
SCALE OF OPERATIONS
The relatively smaller scale of mining tenements and operations in India restricts miners’ ability to bring in desired levels of investment and deploy new technology, in turn lowering the efficiency in operations and productivity and also posing challenges in terms of productivity, safety, sustainability and governance.
The government, industry and stakeholders are cognizant of these challenges.
While such long-range steps progress at varied speeds and intensity, the industry needs to move ahead with initiatives that it can meanwhile undertake to combat these challenges. An efficient way of addressing these challenges is employing smart digital solutions.
UNREALISED SECTOR POTENTIAL
The majority of India’s vast reserves of key metallic and non-metallic minerals remain unexplored, signifying high potential for growth. Constrained by minimal exploration budgets, only 13 per cent of the 575,000 sq. km. area with obvious geological potential has been explored. Even where the resource base is known, the actual mineral output for most minerals has been quite low. India continues to be a major importer of thermal coal despite abundant resources.
With India’s workingage population set to increase by 220 million over the next 20 years, urbanisation and rising incomes will accelerate growth in construction and manufacturing industries. In line with that, the thrust on infrastructure investment through the ‘Housing for All’ by 2022 campaign, modernisation of railways and reforms in the power and real estate sectors will lift the demand for minerals and metals.