KOLKATA (miningweekly.com) - The new mining and mineral sector legislation proposed by the Indian government, which envisions an auction process to allocate resources, would be the death knell for the industry, the Federation of Indian Mineral Industries (FIMI) claimed.

In a communication to Prime Minister Narendra Modi, by way of comments on the new Mines and Minerals (Development and Regulation) Amendment Bill 2014 slated to be placed before the ongoing Parliament session, FIMI said that no resource-rich country adopted auction as a method to allocate natural resources and, if adopted, could lead to cartelization and waste of resources.

In a strongly worded response to the legislation, FIMI said that framers of the amendment Bill were not aware of the state and reality of the Indian mining industry.

It said that most resource-rich countries had not adopted the auction route and the allocating of natural resources based on competitive bids over fears of cartelization and monopolization in the industry, rather opting for a ‘first-come-first-served’ philosophy as a preferred route for allocating natural resources to prospective investors.

FIMI maintained that the auction route would lead to selective mining of higher-grade mineral resources while low-grade minerals would not be optimally extracted, inflating costs of extractions and making such minerals uncompetitive compared to imported minerals.

Coming down heavily on the draft of the legislation, FIMI said that the framers of the proposed law had assumed that India possessed rare minerals not available or produced anywhere in the world, whereas the reality was that minerals produced in India were abundantly available in several countries.

On the contrary, the proposed law completely overlooked the necessity of exploring for natural resources which were currently scarce and in respect of which the country was highly import dependent.

The draft legislation also took no notice of the fact that there was scarce global capital available for exploration and development of mineral resources, a high risk venture, and made no effort to make investments in the Indian mining sector attractive to global investors, as is the case in resource-rich countries like Australia and South Africa, which would see foreign direct investors, instead of making India a destination, moving to other lucrative markets, FIMI said.