Investors should keep faith with Indian mining
Deep Kisor Datta-Ray says the government's efforts to tackle inefficiencies are laudable
Though the future of some of the world's poorest will be shaped by New Delhi's mining polices, they are already responsible for the waxing and waning of international fortunes. Stakeholders are wary of Indian decision-making, for its ethic is cloaked by byzantine politics and regulations.
India's geology is similar to mineral-rich Australia. India's aluminium ore deposits are among the biggest in the world, and they point to the country's natural wealth. Aluminium indicates why India can become the pre-eminent non-oil raw material supplier to the fastest growing consumer of natural resources: China.
India's ability to shape markets should be magnified by the paucity of China's natural resources. Yet, as China's demand for iron ore grows, the portion originating in India has more than halved in five years, something that Australia has been exploiting. Having now secured control of just over half of China's iron market, Australia is in the midst of a resources boom. But it is in China's interest to diversify sourcing. At the same time, Indians could do with the foreign exchange their minerals - since practically all land, mines and equipment is publicly owned - would fetch on the international market.
Such ambitions are threatened by the state's inefficiencies. Hindustan Zinc, for instance, increased production sevenfold upon privatisation. Patently, the magic of the market is the answer to state mismanagement. That calls for well-regulated private mining corporations.
A successful transition will produce a private sector answerable to shareholders and be scrutinised by the state. The alternative is an unaccountable Russian-style oligarchy controlling all natural resources.
New Delhi has stopped issuing mining permits until a comprehensive inquiry into the industry is concluded and a new mining bill is enacted. Prime Minister Dr Manmohan Singh's government has demonstrated its capacity for decisive action by terminating illegitimate or polluting operations. Closures have hurt a handful of Western private financiers and some have withdrawn. It is critical others do not.
The future of Indian mining demands that the state upholds the rule of law by properly regulating a privatised mining sector. But efficient mining also demands private capital to buy technology and equipment.
The closures show that the state can regulate. New Delhi's commitment is proven by the cost of regulation - exporters lost markets, tax revenue diminished and billions have been spent on minerals that could have been mined at home.
It would therefore be an error for financiers to leave, because India is trying to craft a safer - and eventually more rewarding - environment for investment.
