Over the past few years, India has undertaken some radical economic changes to liberalize its economy so as to make it more market-responsive. These changes were initiated in the central government’s budget of 1991-92, which opened up the country to foreign capital.
The government of India made major changes in the industrial and trade policies in July, 1991. The main objectives have been: to deregulate industry; to abolish the licensing system which regulated output (except in a few strategic industries); and to allow the inflow of foreign capital and technology. The thrust of the policy measures has been to remove restrictive measures, simplify procedures and open up several areas to both Indian and foreign companies in the private sector.
Some of the initiatives include:
* abolishing licensing on all projects except a few considered to be strategic or socially important;
* approving foreign investment by up to 51% in high-priority industries if the foreign equity component covers the foreign exchange requirement for capital goods to be used in the project. The list includes such metallurgically related industries as ferro-alloys, casting and forging, non-ferrous metals and their alloys and manufacture of some large-diameter steel pipes;
* Non-resident Indians (NRI) and Overseas Corporate Bodies predominantly owned by NRI will be permitted to invest up to 100% of the equity in high-priority industries, with full benefits of repatriation of capital investment and after-tax income generated from the investment. The management of mineral resources in India is the responsibility of the central and state governments. Mining development is governed by the Industrial Policy Resolution of 1956 and subsequent modifications. The basic mining law is covered in the Mines and Minerals (Regulations and Development) Act of 1957 (MMRD) and the Mines Act of 1952. The Act covers the whole of India and applies to all minerals except petroleum.
There are three sets of rules in force under the Act, namely: * mineral concession rules (established in 1960);
* mineral conservation and development rules (1958); and
* rules for mining leases (1956).
India is a large country comprising 3.3 million sq. km. It has considerable geological potential which has not been fully explored or exploited. About 58 minerals and commodities are being exploited at present, but many more are likely to be discovered. At present, India is deficient in such minerals as gold, copper, tin, lead, zinc, tungsten, sulphur, diamonds and other precious and semi-precious stones.
The National Mineral Policy (NMP) was announced March 5, 1993, by Mines Minister Balram Singh Yadav. It states that India has withdrawn the ban on foreign and private investment in the mining of 13 minerals and commodities. These include: diamonds, gold, copper, iron ore, manganese, sulphur, lead, zinc, nickel, chrome, molybdenum, tungsten and platinum group metals. The NMP allows foreign equity up to 50% in joint ventures in mining projects promoted by Indian companies. Enhanced equity holding (above 50%) will be considered on a case-by-case basis.
To encourage the flow of private investment to India, the following steps have been taken by the government of India:
* The Indian rupee was made convertible on trade account in February, 1993. The rupee now floats freely against the U.S. dollar. On June 4, one U.S. dollar was equivalent to 31.06 rupees, compared with an average of 26.41 rupees between April, 1992, and March, 1993 — a decline of 18%. * A foreign investment promotion board has been established at the highest level of government to provide a one-step agency for the approval of projects. * India has joined the Multilateral Investment Guarantee Agency (MIGA) which is sponsored by the World Bank. By joining MIGA, an investor is protected against political risk or some of the problems which could arise as a result of difficulties in balance of payments (for example, restriction in the repatriation of funds).
* Important changes have been made to the Foreign Exchange Regulation Act (FERA), resulting in rules which are less strict.
* India has signed about 40 bilateral tax treaties which provide significantly lower withholding tax rates for royalties, technical fees and dividends.
Steps taken by India toward a liberalized economy received favorable comment in an editorial in the March 6, 1993, The Economist. It praised the substantial liberalization as regards both foreign trade and the domestic economy. The editorial concludes that “if it (government) keeps up its good work, the Indian economy can astound the world.” In order to achieve the desired goals, India will need a lot of help to develop its mining industry. — Mohan Malhotra is with the Mineral Policy Sector of
Energy, Mines and Resources Canada.
INDIA AT A GLANCE
Area: 3.28 million sq. km.
Population: 872 million (1991 estimate)
Government: Parliamentary democracy; federal government with 25 states, seven union territories
Languages: 14 principal languages. English also used as official language. Currency: Rupee. Rs/US$ exchange rate: Rs31.06 (June 4, 1993)
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