Who’s The one Joking out Here?
The new profit sharing formula introduced by the Ministry of Mines has upset miners in India. While they contest that the new legislation will wipe off the industry, the Government strongly believes otherwise. Who’s the one joking?
After having displayed a laggard approach on the need of a more contemporary mining policy for years together, the government appears to have woken up and has shown great urgency in bringing out a new mining policy that promises to address mining-related concerns of most stakeholders. The new proposal, titled ‘The Mines and Minerals (Development and Regulation) Bill, 2010’, is an amendment to the MMDR Act, 1957, and has been approved by the cabinet to be put before the Parliament.
The new legislation, as the government claims, aims to open up the country’s resources to foreign and local private investment and increase the benefits from mining to local communities. The contours of the new bill make it mandatory for mining companies to give 26% of their net profit as compensation to locals displaced by the projects. The goals laid out by the government in drafting the legislation are wide-reaching and, in some cases, do seem uncompromising. “We are trying to give enough options to the local community by giving them a recurring financial compensation. It’s not a compensation for their land, it is to enable them to do something different. We cannot, sitting in government or industry, decide somebody’s way of life. All we can do is empower them,” says S. Vijay Kumar, Secretary, Department of Mines. The expansion of mining in India is key towards maintaining the GDP and export growth of the country. In a recent interaction with a parliamentary panel, Mines Minister B. K. Handique asserted that the share of mining sector to the country’s GDP, which currently stands between 2.5% and 3%, is poised to increase substantially. To be exact, as industry movements suggest, it could contribute around 5% by the year 2020.
However, talking about the present, despite the geologically established presence of huge mineral reserves in the country, the current scenario of mining in India is rather disappointing. Considering that the mining and construction equipment industry volume is around 40,000 to 45,000 units per annum amounting to a turnover of $2.6 billion to $3.1 billion, the Indian industry is in its nascent stage as compared to the $75 billion global market. Moreover, as per official estimates, out of the 5.75 lakh sq km available in India with potential minerals, only 75,000 sq kms have been explored in detail so far. Not to forget, the battle between the mining companies and the people displaced by their projects have contributed in a big way for this poor show. While neither the existing spotty government mechanism nor the mining industry has been able to provide any relief to the lives of those affected by earlier projects, the question remains, will the new bill be able to resolve these battles?
Miners, who have recently emerged from a commodity slump, are disturbed with the new profit-sharing formula. The reason, they say, is that 26% is a big add-on to the existing long list of taxes, charges and other requirements [Under current regulation (MMDR only) miners need to pay permit fee (Rs.5–20/km), prospecting fee (Rs.0.50–Rs.5 per hectare), fees for mining lease (Rs.1,500), surface rent (state-wise variable), dead rent (variable), royalty (mineral-wise variable), stamp duty (state-wise variable between Rs.500–Rs.50,000). Besides, miners also need to bear various charges under the Indian Forest Act, Environment Protection Act, Labour Welfare Fund, Income Tax Act, and of course, under the unofficial grease-the-babu-corruption act]. While the industry contests that royalty linked contribution by mining companies is the best way to deliver justice to affected people, the government remains firm on its stand to ensure that miners give tribals and other affected sects of the population a share of the profits. Claiming that the government’s stand may demotivate miners in India, R. K. Sharma, Secretary General, Federation of Indian Mineral Industries (FIMI) asks, “In mining, the level of expenditure in exploration is so high that it is not necessary that you come out worthy year after year. If the government is asking for 26% of net profits where the chance of discovery is 1:100, who will come to (invest in) this country?”
Apart from the new profit-sharing formula, there are some other facets of the proposed legislation which has the industry worried. The Bill stipulates a payment of 26% of net profit or 10% as royalty, whichever is more. So, even if a company is in loss, it will still have to pay the 10% royalty. Rather than be an inclusive bill, the could be motivating illegal mining. As a matter of fact, illegal mining is already on a roll with a whopping 3.5 million tonnes of ore being illegally exported in 2009 without any royalty to the exchequer, leading to a loss of about Rs.16 billion. Moreover, the number of cases of illegal mining has worsened from 36,677 cases in 2006 to a total of 35,136 cases in the first half of 2010 itself – most of it with the knowledge of government officials and bureaucrats.
However, it is interesting to see that both the government and industry have raised some similar concerns. Both sides recognise the fact that there is an urgent need for a fresh thrust in exploration of minerals and metals in which India is deficient and depends totally on imports. Both parties also believe that mining should be carried out in a manner that does not hurt the interests of the locals or tribals and have also spoken at length about proactive measures to bring tribals into the mainstream. Call it coincidence or irony, despite earnest promises from both ends, neither wishes to spend from respective personal coffers.
One needn’t be a soothsayer to realize that if the current system needs diametric changes, it will require the joint efforts of policy makers at the Centre and state governments to ensure that concerns of locals are addressed beforehand, and that state-level mining policies do not have structural conflicts with central mining policies. Yes, social and economic demands on mining have often gone at loggerheads and in opposite directions at the same time. Yet, the twain has to meet at one point or the other. Sadly, with political interests intertwined in mining across states, not much will happen.
The new profit sharing formula introduced by the Ministry of Mines has upset miners in India. While they contest that the new legislation will wipe off the industry, the Government strongly believes otherwise. Who’s the one joking?
After having displayed a laggard approach on the need of a more contemporary mining policy for years together, the government appears to have woken up and has shown great urgency in bringing out a new mining policy that promises to address mining-related concerns of most stakeholders. The new proposal, titled ‘The Mines and Minerals (Development and Regulation) Bill, 2010’, is an amendment to the MMDR Act, 1957, and has been approved by the cabinet to be put before the Parliament.
The new legislation, as the government claims, aims to open up the country’s resources to foreign and local private investment and increase the benefits from mining to local communities. The contours of the new bill make it mandatory for mining companies to give 26% of their net profit as compensation to locals displaced by the projects. The goals laid out by the government in drafting the legislation are wide-reaching and, in some cases, do seem uncompromising. “We are trying to give enough options to the local community by giving them a recurring financial compensation. It’s not a compensation for their land, it is to enable them to do something different. We cannot, sitting in government or industry, decide somebody’s way of life. All we can do is empower them,” says S. Vijay Kumar, Secretary, Department of Mines. The expansion of mining in India is key towards maintaining the GDP and export growth of the country. In a recent interaction with a parliamentary panel, Mines Minister B. K. Handique asserted that the share of mining sector to the country’s GDP, which currently stands between 2.5% and 3%, is poised to increase substantially. To be exact, as industry movements suggest, it could contribute around 5% by the year 2020.
However, talking about the present, despite the geologically established presence of huge mineral reserves in the country, the current scenario of mining in India is rather disappointing. Considering that the mining and construction equipment industry volume is around 40,000 to 45,000 units per annum amounting to a turnover of $2.6 billion to $3.1 billion, the Indian industry is in its nascent stage as compared to the $75 billion global market. Moreover, as per official estimates, out of the 5.75 lakh sq km available in India with potential minerals, only 75,000 sq kms have been explored in detail so far. Not to forget, the battle between the mining companies and the people displaced by their projects have contributed in a big way for this poor show. While neither the existing spotty government mechanism nor the mining industry has been able to provide any relief to the lives of those affected by earlier projects, the question remains, will the new bill be able to resolve these battles?
Miners, who have recently emerged from a commodity slump, are disturbed with the new profit-sharing formula. The reason, they say, is that 26% is a big add-on to the existing long list of taxes, charges and other requirements [Under current regulation (MMDR only) miners need to pay permit fee (Rs.5–20/km), prospecting fee (Rs.0.50–Rs.5 per hectare), fees for mining lease (Rs.1,500), surface rent (state-wise variable), dead rent (variable), royalty (mineral-wise variable), stamp duty (state-wise variable between Rs.500–Rs.50,000). Besides, miners also need to bear various charges under the Indian Forest Act, Environment Protection Act, Labour Welfare Fund, Income Tax Act, and of course, under the unofficial grease-the-babu-corruption act]. While the industry contests that royalty linked contribution by mining companies is the best way to deliver justice to affected people, the government remains firm on its stand to ensure that miners give tribals and other affected sects of the population a share of the profits. Claiming that the government’s stand may demotivate miners in India, R. K. Sharma, Secretary General, Federation of Indian Mineral Industries (FIMI) asks, “In mining, the level of expenditure in exploration is so high that it is not necessary that you come out worthy year after year. If the government is asking for 26% of net profits where the chance of discovery is 1:100, who will come to (invest in) this country?”
Apart from the new profit-sharing formula, there are some other facets of the proposed legislation which has the industry worried. The Bill stipulates a payment of 26% of net profit or 10% as royalty, whichever is more. So, even if a company is in loss, it will still have to pay the 10% royalty. Rather than be an inclusive bill, the could be motivating illegal mining. As a matter of fact, illegal mining is already on a roll with a whopping 3.5 million tonnes of ore being illegally exported in 2009 without any royalty to the exchequer, leading to a loss of about Rs.16 billion. Moreover, the number of cases of illegal mining has worsened from 36,677 cases in 2006 to a total of 35,136 cases in the first half of 2010 itself – most of it with the knowledge of government officials and bureaucrats.
However, it is interesting to see that both the government and industry have raised some similar concerns. Both sides recognise the fact that there is an urgent need for a fresh thrust in exploration of minerals and metals in which India is deficient and depends totally on imports. Both parties also believe that mining should be carried out in a manner that does not hurt the interests of the locals or tribals and have also spoken at length about proactive measures to bring tribals into the mainstream. Call it coincidence or irony, despite earnest promises from both ends, neither wishes to spend from respective personal coffers.
One needn’t be a soothsayer to realize that if the current system needs diametric changes, it will require the joint efforts of policy makers at the Centre and state governments to ensure that concerns of locals are addressed beforehand, and that state-level mining policies do not have structural conflicts with central mining policies. Yes, social and economic demands on mining have often gone at loggerheads and in opposite directions at the same time. Yet, the twain has to meet at one point or the other. Sadly, with political interests intertwined in mining across states, not much will happen.
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