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| Ajit Ranade: What Lies Beneath | | The government must fix the mineral policy to enable vibrant growth of the mining industry |
| Ajit Ranade / New Delhi Feb 23, 2010, 00:16 IST |
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At least three states have been in the throes of crises arising out of mining deals. In Jharkhand, there are questions about transparency in the grant of dozens of mining leases. In Orissa, a public interest litigation has asked the Supreme Court to stop blatant flouting of mining lease rules. The apex court appointed a Central Empowered Committee (CEC) to look into the irregularities. In its preliminary findings, the CEC described the situation as a “can of worms”. In Karnataka, there was a major political crisis — the ruling party had a near split over charges of illegal mining in Bellary. A fourth state, Andhra Pradesh, has its own mining woes, with opposition politicians gearing up to make illegal mining a major issue.
This sudden outbreak of lawlessness in the mining industry is actually symptomatic of a deeper malaise. Although all the cases cited above relate to the mining of iron ore, which is linked with steel production, the story is about a larger issue of Centre-state relationship, and whether in the case of mining it has become dysfunctional. India is a country blessed with mineral riches, but those underground riches have not produced much prosperity for the states where these mineral deposits reside. Those states have among the poorest record in human development. India also has a unique four-way conjunction. Most of the mineral-rich areas are also homeland to adivasis (tribals), have water bodies below, and have precious dense forest cover above. Hence, untangling these issues wouldn’t be easy even if there were no other complications. There are indeed complications arising out of unsatisfactory resolution of the four-way conflict. This becomes a fertile breeding ground for the scourge of Naxalism. But the backwardness of these regions is not merely the consequence of the “curse of resources”, an oft-cited economic law. It is due to the interplay of muddled policy framework, strong vested interests opposed to reforms and unimaginable delays in decision-making and implementation. In the world of mining, decisions are measured in geological time. For example, an application for a mining lease with a state government can take anywhere from a couple of years to 40 (!) years to be even opened. Even renewal of mining leases, which presumably should be an uncomplicated process, can take ages. For example, the Steel Authority of India had to wait 12 years for its lease to be renewed. In fact, the controversy in Orissa has arisen because of charges that delays in lease renewals were used as loopholes to flout mining rules.
Except for crude oil, copper ore, sulphur and uranium, India has significant quantities of most minerals. The mining sector has been open to 100 per cent foreign direct investment for almost a decade.
Hence, we should have seen a lot of investment and technology pouring into mine development, reconnaissance, prospecting and mineral production. Yet there are hardly any takers. Foreign mining giants complain about lack of transparency and, most of all, inordinate delays in getting lease permits. Iron ore mining represents the toughest arena for policy clarity. The prime minister appointed a committee under Planning Commission member Anwar ul Hoda in 2005 to suggest comprehensive reform in mineral policy. The Hoda Committee report is the basis for reform of mineral policy in the country. But it has not yet led to a comprehensive reform legislation or simplification of regulation.
Meanwhile, the amended Mines and Minerals Development and Regulation Act (MMDRA) is in the public domain for discussion and feedback. It is likely to be tabled in Parliament in the current budget session. The draft Bill has already led to a heated exchange between the mines and steel ministry. The new policy aims to give greater autonomy to states, but the steel ministry fears that states will grant iron ore mining leases only on condition of putting up steel plants. This is disguised steel licensing. However, any attempt to centralise mining policy is seen as infringement on the state’s autonomy. (Look what happened in sugarcane!). Moreover, there is no consensus on whether state boundaries should be respected for value-addition norms. Can you take ore from one state, and put up an industry in another?
The central issue is that mining lease, i.e. access to the land is the state’s prerogative, whereas the mining rights, i.e. access to the mineral beneath is the Centre’s prerogative. The process of getting a lease and a licence can take years. Big projects like AreclorMittal and Posco have been stuck for years in this lease-and-rights circular gridlock, made worse by problems of land acquisition. After more than hundred years, India’s annual production of steel is barely 50 million tonnes, and much of this growth happened in the past 20 years. By contrast, in 50 years, Australia’s proven iron ore deposits have grown hundred-fold. India opened up its mining sector for hundred per cent foreign direct investment more than 10 years ago.
Among the minerals, coal has a place of distinction since it is linked with energy security. Hence, coal mining is still a public sector monopoly. But we can’t hide the fact that despite being the world’s third-biggest depository of coal, we import more than 10 per cent of our consumption. And this trend is rising. Further, one-third of all industrial power is produced by captive power units. We have been unable to eliminate power shortages even though our endowment of coal should have enabled us to meet our power requirement. The reform needed is to have a transparent mechanism to allot coal blocks to legitimate end-users in an efficient manner. The government has indicated that it prefers to auction coal blocks to ensure efficiency and transparency. This is welcome so long as non-serious players and speculators are kept away. What needs to be kept in mind is that lower cost of coal translates into lower cost of electricity, a publicly regulated utility.
Mineral and mining policy reform in India is long overdue. This reform should not be held hostage to unending debates over captive versus merchant mining of iron ore or coal, or states’ versus Centre’s right to allot leases. What we need is transparency in pricing of mining assets, and drastically cutting down the red tape. There are other equally serious and knotty issues apart from pricing. These relate to environmental clearance, rehabilitation of affected communities and land acquisition. But unless this Gordian knot is cut with a firm blade of reforms, what lies beneath will remain there, and no prosperity can be unlocked from that buried treasure.
The author is Chief Economist, Aditya Birla Group. Views expressed are personal
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