Mining & Natural Resources FDI

Why Mining FDI in India Matters Now

India sits on vast mineral wealth that remains significantly underutilised. The country holds the world's fourth-largest reserves of iron ore, significant deposits of bauxite, chromite, manganese, and limestone, plus newly discovered lithium reserves in Jammu & Kashmir and Rajasthan. Yet, the mining sector contributes just 1.75% of GDP, compared to 8-10% in resource-rich economies like Australia.

FDI equity inflows during April-December 2025 (FY26) surged to US$ 47,874 million, up 22% year-on-year. The mining and metals sector has attracted over US$ 18.6 billion in cumulative FDI since April 2000. With the launch of the National Critical Mineral Mission (NCMM) in January 2025, carrying an outlay of INR 34,300 crore over seven years, the government has signalled that mining is a strategic priority.

For foreign investors, this creates a rare convergence: liberalised FDI policies, government-backed exploration data, and global demand for critical minerals that India can supply.

FDI Policy Framework for Mining

Sectoral Caps and Route Classification

The automatic route governs most mining FDI in India. Here is the current structure:

The key distinction: most mining activities require no prior government approval, but titanium-bearing minerals and ores need clearance from the Department for Promotion of Industry and Internal Trade (DPIIT) through the Foreign Investment Facilitation Portal (FIFP).

Press Note 3 Considerations

Investors from countries sharing a land border with India (China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, Afghanistan) must obtain government approval under Press Note 3 regardless of the sector. This applies even to automatic-route mining activities, making Chinese mining investments subject to security screening by the Ministry of Home Affairs.

Investment Thresholds

Proposals involving total foreign equity inflow exceeding INR 5,000 crore (approximately US$ 581 million) must be placed before the Cabinet Committee on Economic Affairs (CCEA), regardless of route classification.

The MMDR Act: Regulatory Backbone

The Mines and Minerals (Development and Regulation) Act, 1957, as amended most recently in August 2025, governs all mineral concessions in India.

Types of Mineral Concessions

Foreign investors must understand three concession types:

• Reconnaissance Permit (RP): For preliminary prospecting, aerial surveying, and geophysical/geochemical surveys. Valid for 3 years, non-renewable.
• Prospecting Licence (PL): For detailed geological investigation and evaluation. Valid for 3 years (major minerals) or 2 years (minor minerals).
• Mining Lease (ML): For extraction and commercial exploitation. Valid for 50 years for all minerals.
• Composite Licence (CL): Combined prospecting and mining rights for deep-seated minerals. Added by the 2015 amendment.

2025 MMDR Amendment Highlights

The Mines and Minerals (Development and Regulation) Amendment Act, 2025, introduced several investor-friendly reforms:

• Critical mineral inclusion: Leaseholders can add critical and strategic minerals (lithium, graphite, nickel, cobalt, gold, silver) to existing leases without additional royalty payments.
• Area extension: Mining lease holders for deep-seated minerals (occurring 200+ metres below surface) can extend their area by up to 10% through contiguous inclusion. Composite licence holders can extend by up to 30%.
• Renamed trust: The National Mineral Exploration Trust became the National Mineral Exploration and Development Trust (NMEDT), now empowered to fund mineral exploration outside India and in offshore areas.
• Streamlined auctions: Transparent competitive bidding for mineral blocks, replacing the earlier discretionary allocation.

Foreign Company Eligibility

The MMDR Act restricts mineral concessions to Indian nationals and companies incorporated in India. This means foreign investors cannot directly hold mining leases. The standard approach is to establish a wholly owned subsidiary (WOS) or Indian private limited company through FDI, which then applies for mineral concessions.

For government-reserved areas, joint ventures are permitted, but the government company must hold more than 74% of paid-up share capital, with the JV partner selected through competitive bidding.

Critical Minerals: The Strategic Opportunity

The National Critical Mineral Mission, launched in January 2025 with INR 34,300 crore funding, targets 30 minerals deemed critical for India's energy transition, defence, and technology sectors.

Identified Critical Minerals

The Ministry of Mines has identified 30 critical minerals, with 24 included in Part D of Schedule I of the MMDR Act. These include lithium, cobalt, rare earth elements, tungsten, gallium, germanium, vanadium, titanium, graphite, nickel, and tantalum.

Auction Pipeline

By September 2025, India launched its sixth tranche of critical mineral auctions, offering mining-ready blocks and licence-cum-mining-lease blocks across multiple states. Minerals on offer included rare earths, tungsten, lithium, cobalt, gallium, and potash.

Royalty Reforms for Critical Minerals

The Union Cabinet approved new royalty rates designed to incentivise extraction:

Additionally, customs duty on 12 critical minerals has been reduced to zero, including cobalt powder, lithium waste and scraps, and lead and zinc.

A recycling incentive scheme of INR 1,500 crore has been approved for critical mineral recovery, running from 2025-26 to 2030-31.

Licensing and Approvals Process

Step 1: Establish an Indian Entity

Register a private limited company or wholly owned subsidiary in India. File SPICe+ forms with the MCA, obtain a Digital Signature Certificate, appoint a resident director, and complete FC-GPR filing with the RBI within 30 days of allotment of shares.

Step 2: Participate in Mineral Block Auction

Monitor auction notifications from state mining departments and the Ministry of Mines. Submit technical and financial bids for mineral blocks. The auction process uses a competitive bidding model with revenue-sharing or premium-based pricing.

Step 3: Obtain Mining Lease or Composite Licence

Upon winning the auction, execute the mining lease agreement with the state government. The lease is valid for 50 years.

Step 4: Environmental and Forest Clearances

This is often the most time-consuming stage:

• Environmental Clearance (EC): Required under the Environment Impact Assessment (EIA) Notification, 2006. Involves public consultation, EIA study, and approval from the Ministry of Environment, Forest and Climate Change (MoEFCC) or the State Environment Impact Assessment Authority (SEIAA).
• Forest Clearance (FC): Required under the Forest (Conservation) Act, 1980, for mining in forest areas. Requires compensatory afforestation.
• Wildlife Clearance: If the mining area falls within 10 km of a national park or wildlife sanctuary.

Timeline: Environmental and forest clearances can take 12-24 months. The government has been working to streamline through the PARIVESH portal but delays remain common.

Step 5: Mine Plan Approval

Submit a mining plan to the Indian Bureau of Mines (IBM) for approval before commencing operations. The plan must cover extraction methodology, environmental management, and progressive mine closure.

Financial Obligations and Levies

Mining operations in India attract multiple levies beyond standard corporate tax:

Royalty is payable to the state government. Dead rent is charged when no mining operations are conducted; when mining is active, the higher of royalty or dead rent applies.

Key Sectors for Foreign Mining Investment

Coal

India opened coal mining to 100% FDI under the automatic route in 2020, ending decades of government monopoly. Foreign investors can now participate in commercial coal mining auctions conducted by the Ministry of Coal.

Iron Ore and Steel

India is the world's fourth-largest iron ore producer. With the government's emphasis on domestic steel production (target of 300 million tonnes per annum by 2030), foreign mining companies can invest in captive mines through automatic route FDI.

Rare Earths and Lithium

The discovery of 5.9 million tonnes of lithium reserves in J&K's Reasi district in 2023 opened a new frontier. The government-backed entity KABIL (Khanij Bidesh India Limited) is also acquiring mineral assets internationally, in Argentina, Zambia, and Chile.

Bauxite and Aluminium

India holds the world's fifth-largest bauxite reserves. Odisha, Gujarat, Jharkhand, and Maharashtra are key states for bauxite mining investment.

Compliance and Reporting Requirements

Foreign-owned mining subsidiaries in India must comply with both mining-specific and general corporate obligations:

• FC-GPR filing: Report FDI inflows to the RBI via Form FC-GPR within 30 days of allotment of shares.
• FLA Return: Annual Foreign Liabilities and Assets return to the RBI by July 15.
• Transfer pricing documentation: If the subsidiary transacts with the foreign parent or related entities.
• Mining returns: Monthly and annual returns to the Indian Bureau of Mines.
• Environmental compliance: Half-yearly compliance reports to the regulatory authority that granted environmental clearance.
• Annual compliance: MCA filings, tax returns, audit reports, and statutory compliance.

State-Level Mining Landscape

Mining is a concurrent subject under the Indian Constitution, meaning both the central and state governments have jurisdiction. Each state offers different advantages and challenges for foreign mining investors.

Top Mining States

Each state has its own mining department, auction calendar, and administrative procedures. Foreign investors should assess state-level ease of doing business, infrastructure quality, and political stability before committing to a specific geography.

State Incentives

Several states offer specific incentives for mining investments:

• Odisha: Industrial Policy Resolution 2022 provides capital investment subsidy, electricity duty exemption, and entry tax waiver for mineral-based industries.
• Rajasthan: Rajasthan Investment Promotion Scheme (RIPS) offers land allotment at concessional rates, stamp duty exemption, and employment-linked incentives for mining projects.
• Jharkhand: Industrial Policy provides capital subsidy up to 30% for anchor units, electricity duty exemption for 15 years, and dedicated industrial land banks near mineral-rich zones.

International Comparisons and Competitive Positioning

India's mining FDI framework has become increasingly competitive when compared to peer economies. For investors evaluating multiple geographies, the comparison with China and Vietnam is instructive.

India's primary advantages are the 50-year lease tenure (longest among major mining jurisdictions), zero customs duty on critical minerals, and the domestic market for extracted minerals. The key disadvantage remains clearance timelines and the effective levy burden, which is among the highest globally when royalty, DMF, and NMET are combined.

Structuring the Investment

Subsidiary vs Joint Venture

Most foreign mining investors choose between two structures:

• Wholly Owned Subsidiary (WOS): Full operational control, 100% profit repatriation (subject to withholding tax on dividends), and no dependence on Indian partners. Best for large investors with established mining expertise.
• Joint Venture with Indian Partner: Access to local mining expertise, existing licences, land acquisition capability, and government relationships. Partners typically hold 26-49% equity, with the foreign investor retaining control.

Financing Options

Foreign mining companies can fund Indian operations through:

• Equity infusion: Most common route. File FC-GPR within 30 days of share allotment.
• External Commercial Borrowings (ECBs): Debt from the foreign parent or international banks, subject to RBI all-in-cost ceiling and end-use restrictions.
• Internal accruals: Reinvestment of profits from existing Indian operations.
• Project finance: Indian banks increasingly offer project finance for mining operations backed by long-term offtake agreements.

Tax Planning Considerations

Foreign mining companies should structure operations considering:

• Corporate tax: Concessional rate of 22% (effective ~25.17% with surcharge and cess) under Section 115BAA. The Section 115BAB 15% rate for new manufacturers was available only to companies that commenced manufacturing by 31 March 2024; that window has closed and was not extended.
• Transfer pricing: All intercompany transactions (mineral sales, management fees, technical services) must be at arm's length. India's transfer pricing regime is among the strictest globally.
• DTAA benefits: Double taxation avoidance agreements with 90+ countries can reduce dividend withholding tax from 20% to 10-15% depending on the treaty.
• Mineral rights valuation: The valuation of mineral concessions for tax purposes follows IBM guidelines and is subject to scrutiny during tax assessments.

Common Pitfalls for Foreign Mining Investors

• Assuming direct ownership: Foreign companies cannot directly hold mining leases. An Indian subsidiary is mandatory.
• Underestimating clearance timelines: Environmental and forest clearances can delay project start by 2-3 years.
• Ignoring state-level regulations: Mining is a concurrent subject. Each state has its own rules, auction schedules, and administrative processes.
• Missing DMF/NMET contributions: These are in addition to royalty and are often overlooked in financial projections.
• Press Note 3 oversight: Chinese investors have had applications delayed or rejected due to national security screening.

Exit and Divestment Options

Foreign mining investors should plan exit routes from the outset:

• Equity sale: Sell shares of the Indian mining subsidiary to another investor, subject to FEMA pricing guidelines and RBI reporting. No government approval needed under automatic route.
• Transfer of mining lease: The MMDR Act permits transfer of mining leases with state government approval. The transferee must meet all eligibility criteria.
• Winding up: If the subsidiary is no longer viable, formal winding up through the National Company Law Tribunal (NCLT) applies. Mining-specific obligations (mine closure plan, environmental restoration) must be completed before the entity can be wound up.
• IPO: For large mining operations, listing on Indian stock exchanges (BSE/NSE) provides liquidity and exit optionality. Minimum public shareholding of 25% applies within 3 years of listing.

Mine closure obligations under the MMDR Act require progressive rehabilitation of mined areas and a dedicated Mine Closure Fund. Foreign investors must factor these terminal costs into project NPV calculations.

Key Takeaways

• India permits 100% FDI under the automatic route for most mining activities, with titanium-bearing minerals requiring government approval.
• Foreign companies must establish an Indian subsidiary to hold mining leases under the MMDR Act.
• The 2025 MMDR Amendment and National Critical Mineral Mission create significant new opportunities in lithium, rare earths, cobalt, and graphite.
• Budget for 12-24 months of environmental and forest clearances before commencing operations.
• Total levy burden (royalty + DMF + NMET + dead rent + GST) must be factored into project economics from the outset.
• Plan the investment structure (WOS vs JV) and exit route before committing capital, considering state-level incentives and FDI advisory support.