KOLKATA (miningweekly.com) – The Indian government is likely to lower miners’ contribution to proposed District Mineral Funds (DMFs) in response to a global downturn in the commodities market and to ensure a favourable response to forthcoming mineral block auctions amid an adverse investment environment.

According to a Steel and Mines Ministry official, the government was expected to shortly announce that new mining projects would need to contribute 10% of the royalty payable towards the DMFs, while existing miners would have to pay 100% of the royalty payable to the funds.

The government had earlier proposed a mandatory flat rate of 100% royalty equivalent contribution towards the local area development fund.

With the government planning to complete the auction of 108 mineral blocks by December, a lower tax burden on new projects was considered essential to ensuring higher participation by miners at a time when investment sentiment in the global mining sector was negative and commodity prices were on the decline.

Guidelines for the proposed DMFs were presently before the Prime Minister’s office for final vetting and rates payable towards such funds were expected to be announced within the next few weeks, the official said.

DMFs were created under the Mines, Minerals Development and Regulation Act, which, among other things, laid down the legal framework for the auction of all mineral resources. The local level fund for each district would be used for the development and rehabilitation of areas affected by mining projects.

While the mineral auctions and DMFs would be under the jurisdiction of respective provincial governments, rules and guidelines would be as per federal laws.

However, according to a statement by the Federation of Indian Mineral Industries, the mining industry has sought a uniform rate of payment at 10% towards DMFs by all mining projects, old and new.

According to the representative body of miners, India was one of the highest taxed mining industries in the world and the higher cost of mining would inevitably be passed on to end-users. At the same time, the high costs would keep global miners away from investing in new projects, it maintained.

The DMF payment rate had been caught between conflicting claims by provincial governments that want a higher levy, meaning more funds were available for local populations, and the mining industry, which demanded lower rates.

While government officials were unwilling to directly comment on the issue, the proposal to ensure lower DMF contributions by new projects also stemmed from the Indian government’s eagerness to woo global mining majors.

The move to cut the levy comes close on the heels of a meeting between India’s Steel and Mines Minister Narendra Singh Tomar and Australia’s Industry, Science and Resources Minister Ian Macfarlane in Sydney earlier this month.

It was reported that Macfarlane assured his Indian counterpart that Australia would take the initiative to encourage mining majors, such as Rio Tinto and BHP Billiton, to participate at the forthcoming auctions of mineral resources across Indian provinces.

However, it was well known that, over the past year, several global resource majors had expressed concerns during discussions with the Indian ministry over the high taxes that pervade the Indian mining sector and disincentivise new investment in projects.