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Cabinet Approves Royalty Rates for Mining

  • 16 Oct 2023
  • 8 min read

For Prelims: Cabinet Approves Royalty Rates for Mining, Mines and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’), Lithium and Niobium, Mines and Minerals (Development and Regulation) Amendment act, 2023, Rare Earth Metals.

For Mains: Cabinet Approves Royalty Rates for Mining, Distribution of key natural resources across the world (including South Asia and the Indian subcontinent),

Source: PIB

Why in News?

Recently, the Union Cabinet has approved amendment of 2nd Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’) for specifying rate of royalty in respect of 3 Critical and Strategic minerals, namely, Lithium, Niobium and Rare Earth Elements (REEs).

  • This will enable the Central Government to auction blocks for Lithium, Niobium and REEs for the first time in the country.

Note

The Mines and Minerals (Development and Regulation) Amendment act, 2023 was passed by the Parliament, which came into force from August, 2023.

  • The Amendment delisted six minerals, including Lithium and Niobium, from the list of atomic minerals, thereby allowing grant of concessions for these minerals to the private sector through auction.

What are Royalty Rates?

  • About:
    • Mineral royalty is the payment that the government (the sovereign owner) receives for allowing the extraction of mineral resources.
    • A report by the Centre for Social and Economic Progress (CSEP) states that India has some of the highest mineral royalty rates in the world, which affects the competitiveness of its mining sector.
  • Key Amendments:
    • The 2nd Schedule of the MMDR Act provides royalty rates for various minerals. The amendment significantly lowers the royalty rates for these minerals.
    • For instance, Lithium mining will attract a royalty of 3% based on the London Metal Exchange price.
      • Niobium too, will be subject to 3% royalty calculated on the ASP, in case of both primary and secondary sources.
      • REEs will have a royalty of 1% based on the ASP (Average Sale Price) of the Rare Earth Oxide (the ore in which the REE is most commonly found).
    • The Ministry of Mines has laid down the way to calculate the ASP of these minerals, on the basis of which the bid parameters will be determined.
    • Domestic mining is sought to be encouraged with the aim of lowering imports, and setting up related end-use industries such as Electric Vehicles (EVs) and energy storage solutions.

What is the Significance of the Move?

  • Private Sector Participation:
    • The amendment paves the way for the participation of the private sector through auctioning concessions for these minerals, as the government removed them from the list of 'specified' atomic minerals.
  • Global Benchmarking and Commercial Exploitation:
    • By specifying new royalty rates aligned with global benchmarks, the government is encouraging commercial exploitation of these minerals through competitive auctions, either conducted by the central government or states.
  • Boosting Domestic Mining and Industries:
    • The move aims to encourage domestic mining to reduce imports and promote the establishment of end-use industries like electric vehicles and energy storage solutions.
  • Commitment to Net-Zero Emissions:
    • The critical minerals targeted in this amendment are viewed as essential for India's energy transition and its commitment to achieving Net-Zero Emissions by 2070.
  • Strategic Push Against China:
    • The effort to enter the lithium value chain is part of India's strategic push to reduce dependence on China, a major source of lithium-ion energy storage products.

What are the Key Points Related to Lithium, REEs, Niobium?

  • Lithium:
    • Lithium is a vital ingredient for rechargeable lithium-ion batteries used in electric vehicles, laptops, and mobile phones. India, currently reliant on imports for lithium, has made exploration efforts in regions like Jammu & Kashmir, Rajasthan, Gujarat, Odisha, and Chhattisgarh to extract lithium.
  • Rare Earth Elements (REEs):
    • REEs are crucial for permanent magnet motors used in electric vehicles. They are primarily sourced from or processed in China, presenting a supply chain challenge.
    • REEs mining can have environmental implications, and India's efforts aim to secure a supply of REEs while considering environmental sustainability.
  • Niobium:
    • Niobium is used to enhance the strength of alloys, making them particularly useful in various applications such as jet engines, buildings, oil and gas pipelines, magnets for MRI scanners, etc.
    • Nobium is a silvery metal that is very resistant to corrosion due to a layer of oxide on its surface.

What is the Scenario of the Mining Sector in India?

  • Backbone of Manufacturing:
    • Mining industry plays a crucial role in the country's economy, serving as the backbone for manufacturing and infrastructure sectors.
    • Mining and quarrying sector contributes around 2.5% of the Gross Domestic Product (GDP).
  • Scope:
    • India ranks 4th globally in terms of iron ore production and is the world's 2nd largest coal producer as of 2021.
      • Combined Aluminum production (primary and secondary) in India stood at 4.1 MT per annum in FY21 becoming the 2nd largest in the world.
    • As per World Mineral Production, 2016-20, British Geological Survey, India’s ranking in 2020 in world production in term of quantity.
Mineral/Resource Production Rank in 2020
Coal & Lignite 2nd
Steel (Crude/Liquid) 2nd
Zinc (Slabs) 3rd
Aluminium (Primary) 3rd
Chromite Ores & Concentrate 4th
Iron Ore 4th
Graphite 4th
Manganese Ore 5th
Bauxite 6th
Copper (Refined) 7th
  • In 2023, the mineral’s demand is likely to increase by 3%, driven by expanded electrification and overall economic growth in India.
    • India holds a fair advantage in production and conversion costs in steel and alumina. Its strategic location enables export opportunities to develop as well as fast-developing Asian markets.

UPSC Civil Services Examination Previous Year Question (PYQ)

Mains

Q. Despite India being one of the countries of Gondwanaland, its mining industry contributes much less to its Gross Domestic Product (GDP) in percentage. Discuss. (2021)

Q. “In spite of adverse environmental impact, coal mining is still inevitable for development”. Discuss. (2017)

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