Benefit sharing with locals gets a headstart with new mining law

Mining firms believe with such provisions in place, foreign companies won't invest in India

The new mining law has come as a relief for companies, with the amount of benefit sharing with local communities being capped at a-third of the royalty. According to the amendments in the Mines and Minerals Development and Regulation (MMDR) Act, lease holders should pay an amount prescribed by the Centre, which will not exceed a-third of the royalty paid to the state government, for  the District Mineral Foundation (DMF).

The earlier United Progressive Alliance government had proposed that lease holders pay an amount equivalent to royalty paid during the financial year, in the case of major minerals, except coal and lignite. In case of coal and lignite, it had proposed an amount equivalent to 26 per cent of the profit, calculated after deduction of the tax paid. For minor minerals, state governments were asked to prescribe the amount. The mining sector had protested this hefty payment system as it was already facing a slowdown. Consequently, the current government introduced the new provision of payment not exceeding a third of the royalty. The amount, to be used for the benefit of local people, will be over and above the royalty the companies already pay to state governments.

In an ordinance promulgated on Monday, the Centre asked state governments to form a DMF in all districts affected by mining. According to government data, the total royalty accrued in the case of major minerals was Rs 13,920 crore in FY13. The potential collection could be as high as Rs 4,640 crore, if a-third of the royalty collected in FY13 is taken as a base. Since the rates have been revised from August last year, the amount would be now higher.

“Though we welcome the creation of DMF, the new regime will become uneconomical since the industry will need capital even for auction, payment to National Mineral Exploration Trust and royalty,” said R K Sharma, secretary-general, Federation of Indian Mineral Industries. Sharma added foreign companies which have superior technology will not come to India with such provisions in place.

According to a Vedanta spokesperson, India already has a high mining tax base. “Commodity prices are on a downward spiral and mining operations are under severe cost pressures.”

The London-based Vedanta group is an India-focused mining company with interest in iron ore, zinc and other minerals.

He said the DMF provision as outlined in the ordinance is an enabling provision, which gives the highest range and not the exact levy. “We hope the state governments will take full consideration of the market scenario before implementing DMF. Responsible companies are already working for the interest and benefit of persons and areas through the two per cent CSR (corporate social responsibility) spend mandated under the Companies Act,” said the spokesperson.