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Mining Laws and Policies in India

  • 19 January, 2021

  • 15 Min Read

Mining Laws and Policies in India

National Mineral Policy, 2019

  • The policy proposes to grant status of ‘industry’ to mining activity to boost financing of mining for private sector.
  • It focuses on use of coastal waterways and inland shipping for evacuation and transportation of minerals and also encourages dedicated mineral corridors to facilitate the transportation of minerals.
  • It also makes efforts to harmonize taxes, levies & royalty with world benchmarks to help private sector.
  • The Policy also mentions rationalizing reserved areas given to PSUs which have not been used and opening these areas to auction, which will give more opportunity to private sector for participation.
  • It encourages the private sector for taking up the exploration.
  • It even mentions that long term import export policy for mineral will help private sector in better planning and stability in business.
  • It also provides for maintenance of database of mineral resources and tenements under mining tenement systems.

Coal Mines (Special Provisions) Act, 2015

  • It provides for the auction and allocation of coal mines whose allocation was cancelled by SC in 2014.
  • Schedule I of the Act provides a list of all such mines
  • Schedule II mines are those where production had already started before SC’s order in 2014 
  • Schedule III mines are ones that had been earmarked for a specific end-use.

Mineral Laws (Amendment) Bill, 2020: 

  • It replaces ordinances to amendment of MMDR Act and CMSP Act. The Bill is expected to open a new era in Indian coal & mining sector especially to promote Ease of Doing Business.
  • Govt is aiming at the production of 1 billion tonnes of Coal by 2023-24.
  • End use restriction is removed. Until now, only those in power, iron and steel and coal washery business could bid. But Now anyone can participate in auctioning of coal blocks.
  • Companies dont need any prior coal mining experience in India in order to participate in the auction of coal and lignite blocks.
  • The Bill adds a new type of license, called prospecting license-cum-mining lease. Currently, separate licenses are provided for prospecting and mining of coal and lignite, called prospecting license, and mining lease, respectively.
  • State governments can take advance action for auction of a mining lease before its expiry.
  • The Bill provides that the various approvals, licenses, and clearances given to the previous lessee will be extended to the successful bidder for 2 years. He can continue mining but must obtain all the required clearances within this 2 year period.
  • Prior approval of Center will not be required by States in granting licenses for coal and lignite, in certain cases.

Cabinet approved 100% FDI in coal mining

  • End use restriction removal led to expansion of potential bidders and it will now improve domestic market for coal.
  • It democratizes coal industry and makes it attractive for merchant mining companies like BHP and Rio Tinto to invest.
  • India will benefit in spohisticated mining technology, especially for underground mines.
  • Opening up of coal mining ends CIL (Maharatna PSU) monopoly status.

Analysis of mining in India

  • The principle that the economy must be “sustainable” — we cannot compromise the ability of future generations to meet their needs — is beyond question. Climate change and high levels of consumption already threaten to rob future generations of a planet that is liveable.
  • The principle of Intergenerational Equity would make it imperative for us to ensure future generations inherit at least as much as we did.
  • If we are successful in abiding by intergenerational equity, our children will be at least as well off as we are.
  • If we leave a bequest as well, they will be better off than us. To consume what we have inherited without a thought for generations to come will leave the whole world poorer; like an addict selling the family gold.

How it is unsustainable

  • India’s National Mineral Policy 2019 states: “natural resources, including minerals, are a shared inheritance where the state is the trustee on behalf of the people to ensure that future generations receive the benefit of inheritance.
  • The primary objective of a trustee/manager is to maintain the corpus of the trust, the shared inheritance of natural resources.
  • The extraction of oil, gas and minerals is effectively the sale of this inheritance, with royalties and other proceeds being the consideration paid in exchange for the mineral wealth extracted. Unfortunately, governments everywhere treat the mineral sale proceeds as revenue or income, a crucial error which hides the real transaction — a sale of inherited wealth.
  • This results in governments selling minerals at prices significantly lower than what they are worth, driven by lobbying, political donations and corruption. For example, it is estimated from the annual reports of Vedanta that over eight years (2004-2012), the State of Goa lost more than 95% of the value of its minerals — after extraction costs and a reasonable profit for the extractor. Any loss is effectively a hidden per-head tax which makes a few extractors and their cronies super rich. Inequality grows sharply. This is the economics of loot.
  • Worse still, the trifles received by the government are treated as “revenue” and happily spent, leaving neither the minerals nor their value for future generations to inherit. This is just not sustainable.

Losses, error in accounting

  • There is growing empirical evidence of large losses in mining from around the world.
  • There is also growing evidence from the International Monetary Fund that many governments of resource-rich nations, including the United Kingdom and Norway, face declining public sector net worth, i.e., their governments are becoming poorer. Both indicate unsustainable mining.
  • Losses in mineral value drive many of the other problems with mining. In effect, the people and future generations of Goa have sold mineral wealth worth Rs. 100 for Rs. 5, a loss of Rs. 95. Naturally the extractors are keen to extract as quickly as possible and move on. Trees, tigers and tribals are labelled as anti-development or anti-national.
  • If Rs. 5 is received for allowing mining, doubling mining would result in Rs. 10. Politicians and voters perceive more mining equals more government revenue equals good. Further, since extraction is not recognised as the sale of inherited wealth, the true loss of Rs. 95 is hidden. More mining would make a bad situation significantly worse.
  • It is important to understand that as long as the Government Accounting Standards Advisory Board does not correct this error in the standards for public sector accounting and reporting for mineral wealth, politicians and voters will advocate increasing extraction. This will lead to every bit of mineral being extracted if there are no moral or legal safeguards against such wanton loot. It is essential that as a nation we change our paradigm to understand minerals as a “shared inheritance”, not a source of “windfall revenue”.

How to manage it

  • Since minerals are a shared inheritance held in trust for the people and future generations, our foremost duty is to maintain the value of our children’s inheritance by avoiding theft, loss, waste or consumption. Leaving the minerals undisturbed fulfils our duty.
  • Therefore, if we extract and sell our mineral wealth, the explicit objective must be to achieve zero loss in value; the state as trustee must capture the full economic rent (sale price minus cost of extraction, cost including reasonable profit for extractor).
  • Any loss is a loss to all of us and our future generations, and makes some rich; that is patently unfair. India’s National Mineral Policy 2019 says: “State Governments will endeavour to ensure that the full value of the extracted minerals is received by the State.”
  • Like Norway, the entire mineral sale proceeds must be saved in a Future Generations Fund. The Future Generations Fund could be passively invested through the National Pension Scheme framework.
  • Setting a global judicial precedent, in 2014 the Supreme Court ordered the creation of a Goa Iron Ore Permanent Fund, which already has a corpus of around Rs. 500 crore Goa Foundation vs UOI & Ors., WP (civil) 435 of 2012, judgment on April 21, 2014.
  • The real income of a fund of this nature may be distributed only as a citizens’ dividend, equally to all as owners. Future generations would benefit from the dividend in their turn.

On fair mining

  • For the Indian economy this is sustainable — capital has been maintained; the savings rate would rise, making available more long-term domestic capital; it diversifies risk while likely improving returns — it is nearly impossible to outperform the market rate of return; the dividend is in effect a Universal Basic Income; lower inequality leads to higher economic performance, and as budgets no longer have easy mining money, public investment, and tax administration will become more effective and efficient. This is a six-fold economic boost.
  • These principles of fair mining are fully constitutional, promoting justice, liberty, equality, and fraternity. They are moral, ethical, fair, right and sustainable. The reduction in losses would limit corruption, crony capitalism and growing inequality. They fulfil our duties to our future generations. Let us be the generation that changes the course of history for the better, not the one that consumed the planet.

Source: TH

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