National Mineral Policy 2006 - Department of Mines

Chapter 5Value Addition(Term of Reference no. 5)To examine the implications of the policy of mineral-rich states to make Value Additionwithin the state a condition for grant of mineral concessions and make appropriaterecommendations in this regard5.1 At the outset, it is necessary to distinguish between the concepts of value addition andcaptive mining in the context of issues raised before the Committee. Value additionrequirement is imposed by the state governments when they want the concession holder toensure that the industrial unit that uses the mineral from the allocated mine is set up withinthe boundaries of the state in which the mine is located. There is no such location specificityin captive mining and only a supply linkage between the mine and the unit is required. Thishas implications for mining concessions claimed by value adders from adjoining states.Furthermore, in value addition the price at which the mineral is available to the user industryis not material. As long as the product at the time of leaving the state is in value added form,e.g. primary metal or secondary metal instead of the mineral, the condition of value additionis met. In captive mining, the raw material extracted from a captive mine is available to theindustrial unit at cost rather than at market price. The economics of captive vs. non-captivemining is dealt with in Chapter 7 of this Report. Here we look at the pros and cons of valueaddition as a condition of the mineral concession without going into the captive miningaspect.5.2 As mentioned earlier, the benefit of economic liberalisation in the country has notflowed into the mining sector. The enthusiasm initially shown by internationally reputedcompanies for survey and exploration as well as mining has by and large evaporated.Statutory and procedural bottlenecks seriously impede entrepreneurial initiative in the highrisk areas of reconnaissance and prospecting, and consequently there has been littleinvestment in mining projects. The policy of some mineral-rich states (Chhattisgarh,Jharkhand, and Orissa, in particular) to require value addition in a downstream industrialproject within the state as a precondition for granting a mineral concession has added to theproblem. The industry has pointed out that while the world over the mining industry is111