India’s economy is charting rough waters, with virtually every sector facing growth concerns. The mining sector is among the worst hit, with seemingly-unending bad news impacting it deeply. Despite large reserves of iron ore and coal, India’s imports of these precious raw materials have been increasing. The cover story of MSLGROUP in India’s Public Affairs Round-up, or PAR, explores what lies in store for mining as India enters a crucial election year. The other important debate in business circles centres around the new Companies’ Act that mandates corporate social responsibility (CSR) on companies of a certain size. Amrita Choudhary, deputy head of content at MSLGROUP in India, argues that the law will alter India Inc’s social approach and prove to be a big opportunity for CSR consultancies.

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Public Affairs Round-up
AIR ASIA
INVESTMENT
October 2013 | Vol 1 | Issue 3
Mining sector woes
Pg. 2
Impact of new Companies’ Bill
on CSR
Pg. 4
Policy roadmap
Pg. 5
Policy round-up
Pg. 6
Number view
Pg. 7

2. Mining sector woes:
Time to dig deep for an answer
Despite having large reserves of iron ore and coal, India’s imports have been increasing. Recently, ArcelorMittal
scrapped its plan to set up a steel plant in Odisha, the largest FDI project for India, citing among others an
inability to get iron ore linkages. India’s mining sector faces serious challenges.
India is endowed with an enviable reserve of minerals. It has
the fourth-largest coal reserves in the world and significant
reserves of bauxite, titanium ore, chromite, diamonds and
limestone. Gold, copper, zinc and uranium reserves have
also been identified, though in limited volume. In terms of
production, India ranks third in coal and lignite (80% of the
mines in India are of coal), second in barites, fourth in iron ore,
fifth in bauxite and seventh in manganese ore.
Its geographical location makes it the perfect hub for raw
materials or metals exportation to both, developed European
markets and fast-developing Asian markets.
Yet the mining sector’s contribution to India’s gross domestic
product (GDP) has been stagnant for the past few years at
around 2%. The per-capita GDP of a majority of mineralrich states is lower than the national average. The Fraser
Institute Annual Survey of Mining and Exploration Companies
2012/2013, a comprehensive assessment of the attractiveness
of mining policies across the world, puts India at 86th position.
Change is afoot
The Mines and Mineral (Development and Regulation) Bill
2011, that seeks to replace the Mines and Minerals (Regulation
and development) Act, 1957, is expected to change the mining
sector’s landscape. The bill will usher in a simple and transparent
mechanism for the grant of leases and prospecting licences
through competitive bidding in areas of known mineralisation,
and on a first-in-time basis in areas where mineralisation is not
known. It also provides for the seamless transfer of licences from
the reconnaissance permit stage to the prospecting licence and
the final grant of mining leases, thus providing greater certainty
to companies which invest in exploration.
The Bill also enables mine holders to adopt sophisticated
technologies for the exploration of deep-seated and concealed
mineral deposits, especially of metals in short supply, through
a new concession – High Technology Reconnaissance-cumExploration Licence. Moreover, the main concern for investors
– projects delayed due to red tape – has been addressed by
specifying timelines for clearances and providing for mining
tribunals at the central and state level.
The states have also been empowered as they would be
allowed to grant direct mining concessions through bidding
based on a prospecting report and a feasibility study in notified
areas where data of minerals is adequate. In addition, the Bill
has several provisions to check the menace of illegal mining.
A contentious provision relates to profit sharing. The Bill
provides that miners will be required to share part of their
profit with the local community through contribution to a
District Mineral Fund (DMF). It provides for a National Mineral
Regulatory Authority to advise the government on rates of
royalty, dead rent, benefit sharing with the District Mineral
Foundation, quality standards, and also conduct investigation
and launch prosecution in cases of large-scale illegal mining.
Miners have been opposing the provision for profit sharing,
citing the already heavy burden of royalty and dead rent.
However, the Parliamentary Standing Committee of Coal and
Steel has recommended that the provision be retained with
some modifications.
Big guns set to boom
India has been gradually liberalising the policy for foreign
direct investment (FDI) in mining. The sector was opened to
FDI in 1993 after the announcement of a new mineral policy.
Following the changes over the past two decades, FDI in mining
for all non-atomic and non-fuel minerals has now been fully
opened up to 100% through the automatic route, including for
diamonds and precious stones.
Investments So Far
Year
FDI in $ million
2008-09
2009-10
2010-11
2011-12
34.22
86.63
79.51
142.65
2012-13
57.89
(Source: Department of Industrial Policy & Promotion;
Lok Sabha Question No: 2400 August 23, 2013)
Already, some of the top most mining majors – BHP Billiton,
Companhia Vale Do Rio Roce (CVRD), Rio Tinto and De Beers –
have a presence in India or are looking for opportunities here. Rio
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3. Tinto has got a few prospecting licences for diamond mining.
Public sector companies have a large presence in mining,
accounting for more than 80% of the firms in the sector. Many of
them also provide attractive opportunities for foreign investors as
they would now be permitted to rope in technology partners from
abroad under the ‘mine developer and operator’ model.
Finance Minister P Chidambaram’s budget
announcement to introduce a public-private
partnership (PPP) policy framework to increase
production of coal is likely to open a window for
the private sector, including foreign companies, to
participate in coal mining. A committee to devise the
policy is expected to submit its report in three months.
Coal mining has been the prerogative of Coal India Ltd and
government efforts to open it up to the sector to private sector
has not been successful so far. The Coal Mines (Nationalisation)
Amendment Bill has been on the backburner due to opposition
from the unions.
While the recent Right to Fair Compensation and Transparency
in Land Acquisition, Rehabilitation and Resettlement Bill, 2012,
passed by Parliament will increase the cost of land, its passage
will clear the uncertainty that had surrounded land acquisition
since the government announced its plan to bring in the Bill.
The Bill includes mining as a public purpose for which the
government can continue to acquire land.
Early this year, the government set up the Cabinet Committee
on Investment to hasten approvals for large projects with
investments above Rs 1,000 crore ($158 million).
Challenges abound
The economic slowdown has impacted the mining industry,
particularly the iron ore segment. The latest government
data shows that growth of the sector, hit by policy and
environmental clearance delays, fell by 2.8% in the AprilJune quarter of 2013-14 compared to an expansion of
0.4% in the same quarter the previous year. Coupled with
sluggish market conditions, the Supreme-Court-imposed
iron ore mining ban in Karnataka and Goa has impacted
production and exports, resulting in the closure of several
operations in these states.
Before the ban, India was exporting iron ore worth more
than $7 billion per year, making it the third largest exporter
in the world. But after the ban, shipments plunged to 18
million tons in 2012-13 from nearly 168 million tons in
2010-11.
But the country’s soaring current account deficit and
plummeting rupee have compelled the government to
relook the ban, which has deprived the exchequer of
billions of dollars since 2011. The government is preparing
to appeal to the Supreme Court to lift its ban. Already, the
court has relaxed the ban on a few mines in Karnataka.
Prime Minister Manmohan Singh and Finance
Minister P Chidambaram have spoken about
liberalising iron ore exports to fetch muchneeded foreign exchange. The government is
now willing to rethink the 30% export duty it
had imposed earlier following representation
from the steel industry.
The system of ‘go and no-go’ has been dismantled in the
coal sector, but the coal scam has cast a fresh shadow
on transparency and objectivity in allocations. Now the
government is preparing to introduce competitive bidding
for coal blocks and indications are that it may follow suit for
iron ore.
The hope from iron ore is greater as it is commercially
mineable unlike coal and its prices are hovering around $120
a ton in the global markets after touching a low of $84 per
ton last September. Even state-run companies’ efforts to
establish overseas footprints have not taken off in a big way as
International Coal Ventures Ltd, an umbrella body of leading
metal and mineral PSUs,has failed to win any overseas
projects despite having bids for more than half a dozen.
Further, India’s exploration budget continues to be very
small leading to extremely low reserve-to-production
and reserve-to-resource ratios. The impending general
elections leave little space for the MMRD Bill to be
introduced as the winter session will be the last full working
session of the present Parliament; the Budget session
will be a brief vote-on-account session in which legislative
business is not expected to be transacted.
Mining Minister Dinsha Patel recently stated in Parliament
that the sector has the potential to contribute up to Rs
11.25 lakh crore ($250 billion) to India’s GDP by 2025 and
create 15 million jobs. To achieve this, India needs to hasten
the parliamentary approval for MMDR Bill and also focus
on increasing its investment in exploration.
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4. New Companies’ Bill an
opportunity for CSR consultancies,
will alter firms’ social approach
Amrita Choudhary,
deputy head of content,
MSLGROUP India
In recent years, community objectives have been growing in
importance for large businesses in India. Many have
comprehensive programmes that integrate social initiatives with
the corporate mission. This could take the form of volunteerism
by staff or non-financial commitments, while others partner
with the government or non-profits for a cause.
So far, these initiatives have been driven voluntarily by the
management. However, the new Companies’ Bill, recently
approved by Parliament, mandates corporate social
responsibility (CSR) programmes for large corporations.
While this is significant for the social sector, the law could
change forever the corporate social activity landscape in India.
As per the new law, companies with a net
worth of more than Rs.500 crore or revenue
of more than Rs.1,000 crore or net profit
of more than Rs.5 crore will now have
to spend at least 2% of their average net
profits of the preceding three years on CSR
According to a report in Forbes India magazine in March, the
new regulation would mean that the top 100 companies by
annual net sales in 2012 would spend Rs 5,611 crore on CSR,
compared to the Rs 1,765 crore they are spending now. If all
companies comply with these norms – there is no penalty
clause in the law for lack of compliance, but there is one for
reporting – India could probably be the first nation to have
successfully implemented CSR spending through a statute.
Companies can choose their causes, but would need to
change their auditors every five years to impart credibility to
their initiatives. Some of the activities that the Bill recognises
as CSR activities are eradicating extreme hunger and poverty,
promoting gender equality and empowering women, rural
skill development and sports, environmental sustainability and
imparting vocational skills.
T Samsukumar, a practising advocate, said the new regulation
could help cover the development deficit if corporations extend
support effectively.
The Bill has drawn a mixed response from corporate India.
Describing it as a “historic moment” while presenting the Bill
in Parliament, Corporate Affairs Minister Sachin Pilot termed
its passage as the beginning of a new era of corporate law and
regulation.
Dhaval Udani, chief executive officer of Give India, a charitable
donation website, told the Mint newspaper that India will see
CSR consultancies mushrooming now. “There are three to four
organisations that have been doing it for some time, but I think
we will see a lot more organisations getting into this and also
individuals consulting companies,” he said.
For social entrepreneurs, the law will open up many
opportunities as they now have a clear conversation starter.
But there is also a flipside. CSR is not about funds alone,
but an organisation’s willingness to actively ally with a cause.
While many businesses have been doing this voluntarily, a
regulation could foster ‘chequebook philanthropy’. Doling out
an obligatory amount merely to be on the right side of the law
would defeat the very purpose of CSR.
There is also the concern about monitoring these activities.
Chandra Mauli Dwivedi, global head of human resources
and CSR at Datamatics Global Services, cautioned in the
Mumbai Mirror: “The question as to how it will be assessed and
evaluated continues to be a challenge… Companies must have
CSR councils, and all such activities and initiatives must find
[mention] in the annual company report.”
A government-introduced regulation would be truly successful
only corporations, institutions and the social sector work as
partners to make a significant impact on the ground.
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5. Policy Roadmap
Companies Bill
A lot has changed since the Companies Act was introduced
in 1956. The licence raj has been replaced by a liberalised era
and the number of companies has increased by millions.
Promulgated as the Companies Act 2013, the new Companies
Bill is the first major overhaul of company law and will replace
the Companies Act, 1956. The law aims to ease the conduct
of business and improve governance by making firms more
accountable. The legislation was passed by the Lok Sabha in
December 2012 and was by the Rajya Sabha on August 08, 2013.
Major amendments
Compared with 700 sections in the earlier law, the new
one has around 470 clauses. Several key changes have
been introduced to promote transparency in investments,
strengthen the rights of minority shareholders – making it
tough for companies to hide illegal transactions – and to
boost gender parity on boards.
≠ The new law stipulates the appointment of at least one
woman director on the company board. Women
constitute only 14% of senior management positions in
India, against the global average of 24%.
≠ The Bill also introduces the concept of independent
directors. For every listed company, at least one third of the
directors should be independent, with every such board
member allowed a maximum two terms of five years each.
Independent directors cannot have any monetary transaction
with the company of a value equivalent to or more than 10%
of revenue.
≠ Another issue the Bill addresses is spending on corporate
social responsibility (CSR) initiatives. Every company
with a net worth of more than Rs 500 crore or turnover
of Rs 1,000 crore or more or a net profit of Rs 5 crore
must spend at least 2% of average net profits made
during the preceding three financial years on CSR. While
non-compliance will not be penalised, companies must
disclose strong reasons for this.
≠ As of now, there are restrictions on the merger of Indian
companies with offshore firms. The Bill permits such
cross-border mergers with certain provisos. It also
liberalises inter-group mergers and restructuring.
≠ The Bill introduces clauses 245 and 246 on class-action
suits. Such suits may be filed by investors with the National
Company Law Tribunal if they believe that the company
is being run in a manner detrimental to its shareholders.
This is likely to empower small investors. Take the example
of Satyam Computer Services. Even four years after its
fall, its Indian shareholders are yet to get any meaningful
compensation. However, their counterparts in the US were
able to get $125 million (Rs 675 crore) from the company
as settlement due to a strong class-action framework there.
≠ The Bill provides for purchase of minority shareholders’
holdings by a person/group holding 90% or more of
a firm’s equity by virtue of amalgamation, acquisition,
etc. Generally, a company can squeeze out minority
shareholders by opting for capital reduction. Experts argue
that minority shareholders, under the new law, will have
no option but to surrender their shares if the company
wants to buy them out. They say that the Bill gives more
power to corporations by helping them buy out minority
shareholders without risking legal battles.
Conclusion
The new Bill has a mix of self-regulation and government
supervision. It calls for stringent accountability of directors and
auditors, failing which criminal liability can be applied. The Bill
also attempts to strengthen the Serious Fraud Investigation
Office, including bestowing the power of its director to arrest
those he believes are guilty of offences such as fraud.
The Companies Act Will...
Simplify laws
Ensure independence
of boards of which, a third
will now be independent
directors
Improve corporate
governance
Provide for better
and more powerful
oversight
Allow
class action
suits
Limit the term of
independent directors
to ensure they do not
become too close
to management
Make spending
on CSR
mandatory
Improve quality of
financial statements
that will need to have
details of unlisted
subsidiaries
Enforce gender
equality by reserving
board seats for
women
Limit the term of
auditors to ensure they
do not become too
close to management
5

6. Policy round-up
Boost for local fertiliser production
The government has taken initiatives to encourage the
indigenous production of potassic and phosphatic (P&K)
fertilisers by reducing customs duty on phosphoric acid,
making it cheaper for indigenous fertiliser manufacturers. The
government is also encouraging the private and public sectors
to explore the possibility of joint ventures abroad to ensure
uninterrupted supply of fertiliser inputs.
Focus on oilseed cultivation
A centrally-sponsored Integrated Scheme of Oilseeds,
Pulses, Oil Palm and Maize is being implemented across
14 states to promote the cultivation of oilseeds, such as
soyabean. Financial assistance will be provided for purchase
of breeder seeds, production of foundation seeds, production
and distribution of certified seeds, distribution of seed mini
kits, distribution of plant protection chemicals/equipment,
weedicides, supply of micronutrients and improved
agricultural implements, supply of rhizobium culture/
phosphate solubilising bacteria, distribution of gypsum/
pyrite/liming/dolomite, distribution of sprinkler sets and water
carrying pipes, training and publicity.
Cabinet okays Real Estate Bill
The Real Estate (Regulation and Development) Bill, 2013,
has been approved by the Union Cabinet. It provides for a
uniform regulatory environment to protect consumers, help
speedy adjudication of disputes and ensure orderly growth of
the sector. The Bill is thought to be a pioneering initiative to
protect the consumers' interests, to promote fair transactions
and to ensure timely execution of projects.
Tax reform panel set up
The Union Cabinet approved the setting up of the Tax
Administration Reform Commission. The commission will
review the application of tax policies and laws in the context
of global best practices, and recommend measures. It will
help remove ambiguity in the application of policy and laws,
thereby establishing a stable tax regime and a non-adversarial
administration.
Helping agro tech go commercial
development of entrepreneurial companies and activities
through an array of business support resources and services.
Minerals regulation report submitted
The Standing Committee on Coal and Steel has submitted
its 36th report on the Mines and Minerals Development
and Regulation Bill, 2011. Among the salient features is the
provision of a simple and transparent mechanism with clear
and enforceable timelines for the grant of mining leases or
prospecting licences through competitive bidding in areas
with known deposits, and on the basis of first-in-time in areas
where mineralisation is not known.
National Offshore Wind Energy Authority soon
A National Offshore Wind Energy Authority (NOWA), under
the aegis of Ministry of New and Renewable Energy, will be
constituted as the nodal agency for offshore wind projects.
NOWA will carry out resource assessments and surveys in
Exclusive Economic Zones and enter into contracts with
project developers for offshore wind energy project in
territorial waters. NOWA will be a single-window agency and
will coordinate with ministries for clearances.
Ministerial panel for quick rulings on infra
An empowered group of ministers has been constituted to
quickly resolve infrastructural issues and to ensure speedy
implementation of power projects in the North-East. The
group is meeting with the ministers of coal, environment and
forests, and water resources for speedy execution of power
projects. The improved coordination has facilitated several
clearances and improved implementation tremendously.
Boost for food processing sector
To promote the food processing sector, the government is
implementing infrastructure schemes with components for
mega food parks, cold chain, value addition, preservation
infrastructure and modernisation of abattoirs, which could be
availed of by farmers. This would maximise value addition,
minimise wastage and improve their income. The government
has launched a National Mission on Food Processing, a
Centrally-sponsored scheme during the 12th Plan to give a
further impetus to food processing.
Memorandums of understanding have been signed between
the Indian Council of Agricultural Research and industry at
the Agri-Tech Investors Meet 2013 for more than 60 ready-tocommercialise agro technologies from sectors such as crops,
horticulture, food technology, veterinary, agri engineering,
agri inputs and fisheries. The objective is to promote
entrepreneurship in agriculture and accelerate the successful
6

7. Number View
Rs 1.83 lakh crore
Value of 36 infrastructure projects cleared by the Cabinet
Committee on Investment recently in a bid to revive
investments and perk up sentiment. They were stalled
because of regulatory reasons. Among the projects are 18 in
the power sector with investments of Rs 85,000 crore and 18
others in roads, railways, petroleum and natural gas.
17,546 tons
Amount of foodgrains damaged between 2009-10 and July
2012 in Food Corporation of India godowns. Poor storage
infrastructure also results in wastage of fruits and vegetables
worth Rs 44,000 crore every year.
35%
Proposed tax rate for those earning more than Rs 10 crore per year.
Rs 2,000 crore
Proposed dedicated outlay for Sub-Mission on Agricultural
Mechanisation for the 12th Plan, which seeks to provide
assistance for promotion and strengthening of agricultural
mechanisation through training, testing and demonstration,
post-harvest technology and management.
40.29 crore
Number of Aadhaar numbers issued so far. With this, the
Unique Identification Authority of India is on track to achieve
its target of 60 crore Aadhaar enrollments by 2014.
$100 million
Value of loans and agreements signed by the government of
India/National Housing Bank with the World Bank for lowincome housing finance projects.
$300 million
Value of loan agreement signed by the government of India
with the Asian Development Bank for the upgradation of 254
km of severely damaged highways in northern and southern
Bihar.
Rs 25,400 crore
Proposed investment by Coal India Ltd during 2012-17. In
addition, an ad hoc provision of Rs 25,000 crore for acquisition
of coal assets abroad and Rs 10,000 crore for development of
coal blocks in Mozambique has been proposed.
259 million tons
Production targets for foodgrain for 2013-14.
7

8. MSLGROUP INDIA
Public Affairs Round-up
For more information on
what MSLGROUP INDIA PAR has
to offer to your company,
please contact our Asia Practice Leader
Jaideep Shergill
jaideep.shergill@mslgroup.com
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