India's projected growth will keep resources trade high in our bilateral economic relationship. Demand for Australian resources will be strongest where domestic Indian reserves are limited, including in metallurgical coal, copper, and gold. India's demand for both metallurgical coal and copper is forecast to grow at around 5 per cent per year to 2035; over 90 per cent of this is expected to be met by imports. India will continue prioritising price over quality and product life-cycle costs, creating some unpredictability for resource commodity exports to India. As a result, the extent of our market share in these key commodities will depend primarily on the competitiveness of our exports against others.
Resources are, and will remain, a significant component of the Australia India economic relationship
Source: Department of Industry, Innovation and Science (AU). Resources and Energy Quarterly September 2017 [Internet]. Canberra AU: The Commonwealth of Australia; 2017.
India has significant resource endowments of its own and the Government of India needs to – and is seeking to – modernise its mining sector and improve efficiency
As the world's largest exporter of iron ore and metallurgical coal, the sixth-largest exporter of gold, and the third-largest exporter of copper, Australia has a sophisticated and export-focused industry with established channels into India
Australia is a recognised global leader in METS.
Australian METS companies have a competitive edge in the following areas:
Australia also has experience in managing the relationship between mining companies and communities including traditional landowners.
Source: Department of Foreign Affairs and Trade (AU). Services Trade Access Requirements Database. Canberra AU: The Commonwealth of Australia; 2017.
Current trends41 indicate that out to 2035 we will see:
India is seeking to improve the utilisation of its mineral resources through 'scientific and sustainable mining practices and geo-scientific research and development' by40
Progress in any of these elements is likely to be incremental.
For Australian steel producer BlueScope, forming a 50–50 joint venture with major Indian conglomerate Tata in 2005 has been a highly successful match. While it took a number of years for the business to become profitable, in the first half of fiscal 2018 Tata BlueScope Steel had underlying earnings of approximately $28 million, with revenue growing by 7 per cent.
In India, the Tata brand is ubiquitous, covering everything from salt to motor vehicles to steel. Tata was chosen as the joint venture partner due to its corporate values, local brand recognition, well-established distribution channels and secure sources of raw materials. As an Indian private sector conglomerate, Tata also understands how to work with government in India, where relationships are key.
BlueScope offered complementary skills and experience. It had long-established expertise in metal coating and painting technology, marketing skills and customers around the world for its pre-engineered building products.
The joint venture produces a range of steel products supplying well-known global brands such as COLORBOND® steel and LYSAGHT®, as well as local brands such as the flagship DURASHINE® steel. The principal market is India's building and construction sector. Economic activity and urbanisation in India has ensured strong local demand for its coated steel building products, as well as demand from across South Asia and around the world.
The business did face a number of challenges that required dedication and commitment from the partners to overcome.
The construction of a metal coating and painting plant ran into some difficulties with significant delays, but Tata Steel's local knowledge assisted with development approvals and local government relations to complete and commission the plant, which has since been operating successfully.
The joint venture took a number of years to become profitable and some parts of the business were underperforming and required restructuring. The joint venture partners worked together on a suitable revised business plan and to develop an appropriate approach to deal with the restructured assets.
Over the last few years, the joint venture business successfully refinanced term loans and exercised an option for early redemption of debentures. Both shareholders supported the joint venture in its dealings with lenders and regulatory authorities.
More than a decade later, Tata BlueScope Steel has six major manufacturing plants across India, employing 550 people, with revenue of around $400 million. Expansion of production facilities is on the cards.
Recent changes to sales tax, resulting in more uniform taxes across Indian states, has worked in the joint venture's favour.
Perseverance by BlueScope in India has been important. It took a long term view, and specialised in doing what it knew how to do best. Working with Tata, the right partner in India, has also been key to the joint venture's success.
India's demand for resource commodities will continue to grow. Of significance for Australia's areas of competitive strength, India is likely to remain import reliant for metallurgical coal, gold, and copper out to 2035.
India's National Steel Policy 2017 sets a highly aspirational steel consumption target of 255 million tonnes per annum by 2030 (India's crude steel production is currently around 100 million tonnes). This would require around 196.4 million tonnes of metallurgical coal per annum – an expected growth in demand of 4–5 per cent per annum from 2016 to 2030.
By 2030, over 90 per cent of India's metallurgical coal demand is expected to be met by imports (see Figure 26)
While India is looking to diversify its import sources, Australia will remain well-positioned to meet India's continued strong import demand, given the high quality of our metallurgical coal and that we are India's top supplier by a considerable margin42
Source: Work commissioned by the India Economic Strategy Secretariat to support this report.
Although India has about 30 billion tonnes of iron ore reserves and was a net exporter of iron ore as recently as 2012, India has recently become a net importer12
In the short to medium term, these challenges will mean Indian domestic production is unlikely to meet demand and opportunities will continue for Australian iron ore exporters
In the long term, Indian iron ore import growth is uncertain
Indian demand for copper is being driven by urbanisation, increased rollout of electrical transmission networks, and the manufacturing sector.
India has limited copper ore reserves, constituting just 2 per cent globally, and imports around 95 per cent of its copper requirements as concentrates.12
Supported by India's growing refining capacity, India's import reliance on copper will likely remain above 90 per cent as demand continues to grow at a steady pace. Future demand growth is expected to be in the range of 5–6 per cent per annum.12
Growing demand presents opportunity for Australia to increase its 11 per cent market share, if it can maintain landed cost parity with competitors.
India is one of the world's largest consumers of gold, with almost 80 per cent of demand coming from end-use in jewellery and as household investments
Hundreds of millions of years ago, Australia and India were both part of the ancient super-continent Gondwana. Today both nations share geological similarities and Australian geoscientists can apply their knowledge and experience in the Indian context.
As India becomes more urbanised, and demand for mineral resources grows, understanding regional geology, and being able to predict the potential for undiscovered mineral deposits, is becoming increasingly important.
India has an ambitious vision to develop its vast mineral resources, and to do so needs a modern exploration and mining sector. Geoscience Australia is using its internationally recognised technical expertise to assist the Geological Survey of India in becoming a world-class geoscience organisation.
Through a Memorandum of Understanding, Geoscience Australia is building the capacity and technological capability of the Geological Survey of India to assess the potential for minerals deep underground. It is holding ‘train the trainer' workshops in India, inspecting equipment and facilities, and seconding Indian officers to work inside Geoscience Australia.
Together, the agencies are developing a ten-year vision for the Geological Survey of India.
Collaboration has mutual benefits for Australia and India. Through its engagement with Geoscience Australia, India is also set to draw on the expertise of Australian universities, Australian geoscience contractors, and the mining equipment, technology and services sector more broadly.
India has scant domestic gold reserves to meet this demand. Imports are either in refined or doré (partially refined) form. Doré imports have grown as the Indian Government has sought to incentivise domestic refining while imposing import restrictions on bullion imports.
Australian gold exports are primarily in bullion and Australia competes with South Africa as the primary producer of gold exports to India, with Swiss traders and to a lesser extent the United Arab Emirates and the United Kingdom as the largest exporters
Australian exporters may be affected by Indian regulatory settings including
The value of Australia's gold exports to India in recent years is set to keep fluctuating with these domestic policy settings as well as international gold prices.
The increasing adoption and use of new technologies, including environmental technologies, will mean India will require commodities such as critical metals and rare earth elements, of which Australia has reserves.
India is one of the 10 or so countries that also has its own rare earth reserves and active mining projects. The Indian Government is trying to promote rare earth mineral exploration and production from a very low base. If India looks to increase its rare earth refining capabilities out to 2035, there may be the opportunity for partnership with Australia.
Out to 2035, there are good growth opportunities in the value and volume of our metallurgical coal, copper, and gold exports to India. Attracting Indian investment into the Australian resource sector can bring in capital and create jobs. For India, vertically integrated investments into Australia can help smooth commodity price volatility. As India's exploration and extraction continues to grow, so too will opportunities for Australian METS companies. However, the well-trodden pathway for Australian METS companies to follow Australian resource majors into markets is unlikely to eventuate in the Indian market.
Table 2 projects the demand, supply and import figures out to 2030 for key commodities.12
|Resources||Units||Indian Demand||Indian Domestic Supply||Indian Imports|
|Metallurgical coal||Million tonnes||52||90–100||15||6–8||87%||90–95%|
|Iron ore||Million tonnes||154||290–300||156||290–300||5%||0–3%|
Some 35 Australian METS companies are already active in India.
India's demand for METS will grow out to 2035, particularly in connection to those commodities for which India is prioritising greater domestic output, such as thermal coal where Coal India has big and sophisticated aspirations [see Chapter 7: Energy Sector]
Beyond coal itself, there will be opportunities in advanced Indian mining projects for exporters of mining IT, planning software, safety, health and risk management technologies and methods, and training in all its forms
The projected growth in India's METS sector offers Australian firms, a large number of which are SMEs, the opportunity to increase participation in Indian supply chains through research and development collaboration and joint ventures
Although manufacturing products in India could help Australian products compete in the price-sensitive Indian market, any sort of large-scale METS manufacturing hub is unlikely, as Australia manufactures only certain niche products and little by way of automated equipment.
The METS sector in particular offers a number of collaborative opportunities as India's mining sector grows out to 2035.
At the peak of the resources cycle in 2012–13, Australian METS companies generated revenue of $90 billion globally and employed an estimated 386,000 people41
Collaboration between Australian and Indian mining technology research institutions can be the precursor to joint commercialisation and METS exports
A number of Australian METS companies have an established local presence, or use a local partner, in India. This investment, while modest in overall dollar terms, has the potential to grow and create Australian company clusters
Collaboration on education and training could include Australian METS providers partnering with training organisations and offering industry-embedded courses and research degrees
The Australia-India Mining Partnership at the Indian School of Mines at IIT Dhanbad (IIT-ISM) provides a platform for training, research and development engagement
A key focus should remain attracting Indian investment in the Australian minerals sector.
Australia's vast resources base requires foreign capital, technology and markets for further development.
Indian steel manufacturers could look to secure Australian metallurgical coal assets, considering the projected increases in Indian demand. Coal India has also expressed an interest in acquisitions in Australia.
India's investment experience in the Australian coal sector (both metallurgical and thermal [see Chapter 7: Energy Sector]) has been problematic. The absence to date of a high profile and profitable flagship investment could deter Indian investment interest. However, Indian investment into Australian resources projects would provide important returns for Indian companies in mining related skills.
Resources is one of the most challenging direct investment sectors in India for foreign participants with limited prospects of anything more than incremental change
While making up the bulk of our merchandise exports, the government-dominated resources sector in India brings with it a range of regulatory barriers, which constrain commercial activity. Despite an apparently open FDI regime for resources, the costs associated with domestic regulatory compliance remain a hurdle to foreign investment. A lack of investment in exploration, and inadequate information about proven reserves, are also key issues impeding India's mining industry with India having explored only 10 per cent of its mineral resources to date. For METS especially, behind the border restrictions on licencing and permits inhibits the delivery of professional services into the Indian market. Corruption, poor contract enforcement, and uncertainty over land tenure adds to this complexity and cost. In terms of commodity exports, a key challenge for Australian firms is the increasing global competition from emerging economies where the cost of production is significantly lower.
Constraints in the policy and regulatory environment within the mining and resources sector are unlikely to improve meaningfully out to 2035.
Tariffs on minerals and metals are among the lowest categories across the Indian schedule
Tariffs are higher for METS (often three to four times higher than for ores and concentrates) and are also accompanied by a host of other fees and border charges
Due to the unpredictability of business conditions, India does not attract FDI commensurate with its importance as a producer of minerals and energy or its potential to increase output substantially
The list of regulatory barriers to investment and foreign participation in India's resources sector is long. Some of these challenges are applicable to other sectors of the economy, and include:
Mining plays a major role in the Indian economy, and the Indian Government has ambitious plans for growth. But India needs new technology and modern mine safety and health systems to develop its reserves, and power its economy.
Queensland's Safety in Mines, Testing and Research Station (SIMTARS) offers this expertise. It has taken a long term view, starting in India in 1998 with small training projects delivered to India's Directorate General of Mines Safety. It has gradually built relationships since then.
SIMTARS is now seeing results. India's 2017 national mine safety law is based on Queensland legislation. SIMTARS has a contract with the Indian School of Mines to supply and deliver a virtual reality theatre and spontaneous combustion and explosion laboratory. It also has major contracts with Coal India and its associated subsidiary Singarini, to deliver training and a real time underground gas monitoring solution.
SIMTARS has built relationships by making regular visits to India every year, attending conferences, giving keynote speeches, providing specialist advice and delivering training and gas monitoring solutions.
SIMTARS has made the most of its institutional connections. Working through the Indian School of Mines it has been able to connect with some of India's best researchers and gain access to those making purchasing decisions.
Government to government frameworks have been important for SIMTARS' initial engagement in India because Coal India, Singareni and SAIL are all state owned enterprises. However SIMTARS also works with private sector groups in Australia and has introduced them to the Indian market. It is also working with Indian private sector mining entities.
Ultimately, the Australian mining equipment, technology and services sector as a whole stands to benefit from the work of SIMTARS which demonstrates the value of international technology and expertise to India's efforts to develop a more advanced local mining sector. SIMTARS is one of many Australian groups from this sector working in India.
Mining is concentrated amongst a few large public sector companies including Coal India Limited, Singareni Collieries Company Limited, Steel Authority of India Limited and Hindustan Copper Limited
Over the last decade, the private sector has played an increasingly active role in the mining sector and large Indian corporations including Tata Steel, Vedanta, Aditya Birla and Jindal are making investments in mining and related technology.
India also has some smaller, disparate companies operating at the margins of India's regulatory environment. In general, this third group are less reliable partners for investors or suppliers.
India's aims to diversify supply, along with its natural preference for import substitution, could see it look to reduce Australia's dominant market share in metallurgical coal.
The price-sensitivity of the Indian market makes it difficult for foreign METS companies – who could offer cutting-edge technology and services – to compete with domestic players.
Many Australian METS operators are SMEs and may not have the resources to undertake loss leader strategies while establishing themselves in India.
In the METS sector competition will continue from North America and Europe, while India's domestic METS sector will grow out to 2035.
While improving, contracts are often re-interpreted, leading to delays in payment or in granting licenses [see Chapter 15: Understanding the Business Environment].
Independent reports have identified metals and mining to be some of the most vulnerable sectors for corruption in India43
West Bengal and the eastern states of India (Jharkhand, Chhattisgarh, Bihar and Odisha) are home to the majority of India's resource deposits and mining activity. This critical mass of Indian and Australian interest makes these eastern states natural targets for increased political investment in support of our long term export and investment relationship with India.
A regional hub for engagement on mining and METS, including as the gateway to the mineral-rich states of Jharkhand, Chhattisgarh and Odisha, West Bengal will likely remain the most significant METS market for Australian companies in India.
The state's capital Kolkata is re-emerging as a growth centre
Around one-quarter of India's total steel production comes from Jharkhand. With the proposed expansion of a number of integrated steel plants, Jharkhand is a steel hub of India.
The state is the sole Indian producer of coking coal, uranium and pyrite, and ranks first in the production of mica, kyanite and copper.
Investment: Jharkhand was ranked fifth as an FDI destination in India and seventh in Ease of Doing Business in 2016.
Australia's engagement with IIT-ISM is based in Jharkhand.
Odisha accounted for 21.6 per cent of India's coal production in 2015–16, and the state ranks first in India in the production of chromite, manganese, iron ore and bauxite.
The state accounts for a third of India's iron ore reserves, a quarter of coal reserves, half of bauxite reserves, and almost all chromite and nickel reserves.
Odisha has around 50 per cent of India's aluminium smelting capacity and around 20 per cent of India's steelmaking capacity.
A number of Australian METS suppliers are based or working in Odisha.
Resource-rich Chhattisgarh produces 27 per cent of India's iron and steel, 20 per cent of iron ore and 15 per cent of aluminium, presenting opportunities in METS.
Some of the best quality iron ore deposits in the world are located in the south of Chhattisgarh.
The state is also endowed with considerable reserves of bauxite, limestone and quartzite, and is the only state in India that produces tin concentrates.
There is also mining activity in south India, focussed around Andhra Pradesh
India has ambitious plans to double domestic coal production by 2020. India has the fourth largest deposits of thermal coal in the world and is looking to Australia to provide mining technology and expertise.
The Commonwealth Scientific and Industrial Research Organisation (CSIRO), the Australian Government's scientific research agency, is helping meet that demand, working with Singareni, one of India's state owned coal mining companies, in the southern Indian state of Telangana.
Underground mining in both countries uses longwall mining techniques and mechanisation to increase safety and make production more efficient.
The CSIRO and Singareni signed a Memorandum of Understanding in 2006 to work on geomechanics and other research related to coal mining. This has led to collaboration on three major projects, worth $7.3 million.
At Singareni, high capacity longwall was introduced in their Adriyala mine with technical assistance from the CSIRO.
The collaboration has paved the way for advanced longwall mining technology to be introduced in more Indian mines. It is also set to improve safety and productivity as India strives to meet its energy needs.
Australia can continue to position itself as a trusted bilateral partner and a strong, reliable supplier of resource commodities and METS services. Government should look to provide greater support to Australian METS providers as they seek to create opportunities in the market. These efforts will be reinforced by continued government to government and industry engagement in India, including through upgrading the Australian Government's presence in and around India's resources hub of Kolkata. Our major resources play in India will remain export-based.
Our standing as a major resource commodities trading partner with India, and a country that India looks to as a leader on mine management, gives us currency within the Indian system. We should use this to build the Australian brand and further entrench engagement.