The Union Budget for financial year 24-25 attempts to tackle the impossible trinity of achieving inclusive growth, fiscal prudence and sustainability. I would like to take this opportunity to congratulate the finance minister for this feat. With a focus on clean energy pathways, job creation, and MSMEs and a continued thrust on infrastructure spending, the budget has maintained a pragmatic balance between expenditure and fiscal prudence. India’s lower fiscal deficit target of 4.9 per cent of GDP (5.1 per cent in the interim budget) is expected to boost investor confidence and economic stability.
Currently, the contribution of the mining sector to GDP hovers between 2-2.5 per cent, and to increase this share and further propel the growth of this sector, in the last decade, the government has undertaken a slew of policy reforms to unlock the country’s mineral potential and bolster domestic production. The government introduced multiple structural reforms through amendments to the MMDR Act, aiming to boost mineral production and attract private sector investment in mining. Reforms such as auctioning exploration licenses (EL), removing six minerals from the list of twelve atomic minerals, time-bound operationalisation of mines, measures to accelerate the pace of exploration, commercial mining and auction of offshore mines are expected to yield results going forward.
Specifically for the metals and mining sector, the Union Budget FY25 continues this momentum of policy reforms with significant announcements regarding critical minerals, reductions in raw material duties, and a sustained focus on capital expenditure. Indian mining and metals sector forms the foundation of a strong industrial base, given its vast linkages with the downstream manufacturing and infrastructure sector. India is endowed with significant mineral wealth, and the growth in the metals and mining sector in the past decade has been propelled by infrastructure expansion, advancements in automotive and transportation sectors, innovations in manufacturing technologies, focus on green energy and growing use of electric vehicles and battery storage.
Sustained reform push through the Union Budget FY25
Specific announcements in the Union Budget FY25 are expected to further boost the metal and mining sector, in addition to the measures already undertaken by the government. Key measures, including continued impetus on infrastructure investment, securing critical minerals supply chains, and exemption and reduction in customs duties on raw materials, will likely enhance domestic value addition and production.
The government’s continued focus on public capex and infrastructure spending is evident in its capex outlay, which has increased to Rs 11 trillion (3.4 per cent of GDP vs 2 per cent in FY15) for FY25, almost five times the levels seen a decade ago. This is projected to positively impact the metals and mining industry, increasing demand for both ferrous and non-ferrous metals.
A significant highlight of the Budget was the emphasis on critical minerals. The finance minister announced a full exemption from customs duties on 25 essential minerals, including copper ore, cobalt, vanadium, and lithium, and reduced the Basic Customs Duty on a few others like palladium and platinum. These minerals drive nuclear energy, renewable energy, space, defence, telecom, e-mobility and high-tech electronics. The measures outlined in the Budget are pivotal to India’s strategy for establishing reliable, diversified, and sustainable supply chains for these critical minerals and will play an important role in India’s clean energy transition.
Additionally, the Budget introduced a flagship Critical Minerals Mission (CMM). The Critical Minerals Mission aims to create a dependable and secure supply chain for critical minerals in India by focusing on three key areas: enhancing domestic production, securing international resources, and encouraging recycling. This mission will focus on technology development, building a skilled workforce, implementing an extended producer responsibility framework, and creating an effective financing mechanism. If formulated and implemented effectively, the Critical Minerals Mission (CMM) will significantly enhance the utilisation of these minerals and mitigate supply risks arising from geopolitical factors and natural constraints. With this announcement, FM has provided further impetus to India’s energy transition journey. Additionally, the budget’s focus on energy security, including recognition of hard-to-abate sectors, support for renewable energy, and new opportunities for private participation in nuclear power, is commendable.
To reduce the cost of steel and copper production, the government removed the BCD on ferro nickel and blister copper. This will help enhance the competitiveness of India’s steel and copper sector. Further, reductions in customs duties on gold and silver are expected to encourage value addition in precious metal jewellery.
Way forward
The Budget has taken bold steps towards securing critical mineral supply chains; however, India needs more mineral processing and refining capacity. Extracting and refining minerals is both technologically intensive and costly. Going forward, a holistic national-level critical mineral strategy focusing on building a secure value chain and robust ecosystem for financial assistance, exploration, skill and technological development, partnerships, R&D, and foreign acquisitions will be needed.
A clear set of guidelines on sustainable and responsible mining will be needed to further boost sustainable mining. The government may also consider relaxing certain duties and levies (such as royalty, DMF, NMET, etc.) for using sustainable mining practices and technologies to further incentivise green mining.
To secure minerals at risk of supply disruption due to geopolitics, the government could review and streamline the upcoming Free Trade Agreement (FTA) with the EU, Peru and other countries that hold mineral reserves. If FTA negotiations take time, Early Harvest Schemes could also be explored.
Enhancing logistics infrastructure in mineral-rich areas and measures to increase private participation in exploration activities and incentive mechanisms can be explored. Higher taxation on mining firms (45-50 per cent) in India vs. 25-30 per cent per cent in countries such as Australia and Canada is also a deterrent. The latter countries account for almost 15-20 per cent of global exploration spending compared to India’s 0.3 per cent. Targeted policy measures can help increase the same.
Overall, the Budget provides a robust foundation for the next few years by emphasising fiscal responsibility, investment, and inclusive and sustainable growth. It sets the path towards achieving Viksit Bharat. The metals and mining industry is committed to partnering with the government in this transformative journey for the sector.
The author is Chair, FICCI Non-Ferrous Metals Committee
Leave a Reply