Mineral assets: Govt's auction-only strategy to backfire, hurt steel sector

07 Oct 2015

The government’s strategy of auctioning mineral resources to ensure transparency in the allocation process would bring exploration activities in the country “to a halt” while adversely impacting the ‘Make in India’ programme the National Council of Applied Economic Research (NCAER) has said in a report. Instead the Centre must focus on incentivising mineral exploration and the ‘auction only’ system should be replaced with a mechanism that encourages mining and promises exploring firms of seamless concessions on mineral discovery the report said.

Suggesting that the system of bidding out mineral resources should be supplemented with the ‘first come first served’ (FCFS) system that is prevalent worldwide the report blamed the new auction process along with the decline in global iron ore prices for the raw material crunch in the country which is “likely to push up costs of both coal and iron ore”. “The FCFS system yields less spectacular revenues but the government needs to take a policy decision whether the goal is revenue maximisation or scientific development of the sector. Auctioning everything just to have a ‘non-discretionary’ way of allocating resources is a sub-optimal methodology that will lead to far more waste and loss than any other system” the report titled ‘Indian Steel Industry: Key Reforms for a Brighter Future’ said.

India is also losing export competitiveness due to factors like high unit cost of labour lack of capital poor logistics it added.

While fully prospected mineral deposits should be bid out the auctions should be based on sealed bids rather than e-auctions. The reserve price should be based on independent credible third party evaluations using the Valmin Code or an equivalent the report says. Valmin Code is a mechanism used by Australian geoscientists for technical assessment and valuation of mineral assets.

 NCAER study on The Indian Steel Industry: Key Reforms for a Brighter Future was released on 6 October 2015. Know more

Published in: The Indian Express, October 7, 2015