By Swaminathan S Anklesaria Aiyar
At last a pernicious nationalization is going to be partly rectified. A new mining bill has just been cleared by a group of ministers, mandating the sharing of 26% of mining profits with the local population in the case of coal, and the payment of a sum equal to last year’s royalty for other minerals.
Henceforth, mining proceeds will not be appropriated entirely by mining companies, the central government (through taxes) and the state government (through royalties and local levies ). The people in mining areas will also benefit as stakeholders.
This dilutes an old, unjust nationalization. In many countries, people own the land they live on, the trees above and the minerals underneath. But in India, a silent nationalization started in British colonial times and was extended after Independence. Some areas were designated as reserved forests, nationalizing all the land and trees. Later, all minerals underground were declared to be government property. Those living on the land were deprived of all property rights, without compensation.
The impact of this massive nationalization was greatest on tribals living in forests. They lost their land, trees and minerals. Even in non-forest areas, land acquisition laws allowed land to be expropriated and compensation paid at the rate of agricultural land, without taking any account of the huge mineral wealth underground.
This injustice has recently sparked major agitations, which have been led by Maoists in jungle areas. The fundamental tribal problem is not that mining is allowed but that their mineral rights have been expropriated. Fortunately, agitations against mining have finally obliged politicians to acknowledge the gross injustice and make reparations. Mining affects not only the ousted people but all locals, by polluting water and air, razing trees and curbing rights to graze animals and collect minor forest produce.
Naïve idealists want local populations to get a share of the mining profits, as shareholders. This would have terrible unintended results. Mineral extraction can entail a chain of companies from those actually mining to those screening, processing, transporting and exporting the minerals. Costs and profits can easily be shifted from one company to another. Any crooked miner can shift all the profits from mining to screening, processing and transportation companies. In such cases, the local population will get nothing, since the books of the mining company will show no profit.
Fortunately, the Planning Commission opposed profit sharing. Industry said that foreign investors would be deterred by profit sharing. More relevant, profit sharing would favour crooks over honest miners, Indian or foreign. India has never been short of glowing, idealistic formulae that end up benefiting crooks. Profit sharing is one such.
After much debate, the group of ministers has mandated 26% profit sharing for coal companies , arguing that these are mostly government companies that will not cook their books. That’s too naïve .
Besides, many companies in steel, power and cement have captive coalmines, and may not separate their mining accounts accurately and honestly pay their full dues. Finally, one day private coal mining will be freely allowed , at which point the profit-sharing formula will enable crooks to beat honest miners, with the local population losing massively.
Far better is the royalty payment scheme for minerals other than coal. State governments have long got mineral royalties. But instead of spending these on higher compensation and massive development for local populations, the sums have disappeared into state capitals, never seen locally again. So, there has long been a crying need for a “people’s royalty’ as distinct from the state royalty, which will go into an account earmarked for local use at the district or block level. Part of this money should be distributed in cash to households, while the rest should be used for local area development—roads , schools, and so on.
Problem: 26% profit sharing is estimated to provide Rs 9,000 crore, while the royalty would provide only Rs 2,600 crore: Solution: let the people’s royalty be 3.5 times the state royalty, indexed to global prices in future. Royalty rates are abysmally low. The recent commodity boom makes much higher royalty payments affordable by miners. Besides, it’s a moral imperative.
The people’s royalty will be more like a rental income than sharing of profit. Ask the tribals , and they will surely tell you that an assured rental income is far preferable to profit sharing that may be a bonanza (if miners are honest) or zero (if miners are crooks). This will not undo the original sin of nationalizing tribal property. But it will remedy part of the injustice. It also means that local populations will welcome mining as a road to development, instead of opposing it as a road to perdition.
(Swaminathan S. Anklesaria Aiyar is a prominent Indian journalist and columnist. He is consulting editor for the Economic Times and writes regularly for the Economic Times and The Times of India.)
(Sourced from Economic Times, 10 July 2011)