Orissa demands revision of royalty rate to at least 20 per cent

Mineral rich Orissa, which has 95 per cent of chrome ore reserves, 55 per cent of bauxite deposits and 33 per cent of iron ore reserves in the country, has finally swung to action on the royalty front. The state government has demanded that the royalty rate needs to be made ad valorem for all minerals and raised to at least 20 per cent to ensure that that the state gets a fair share from its mineral wealth.

The demand was made by the state government in its pre-Budget memorandum submitted to the Government of India. It may be noted that the Union finance minister Pranab Mukherjee had convened a pre-Budget meeting of the state finance ministers in New Delhi on January 19.

Presently, the royalty rate for iron ore and chromite has been pegged at 10 per cent of sale price on ad-valorem basis while for manganese ore, it is 4.2 per cent of the sale price. For bauxite, the royalty stands at 0.5 per cent of the aluminium metal price on the London Metal Exchange (LME). For F Grade coal, the royalty is determined by the formula- a+bp where a= Rs 55, b= five per cent and p being the pithead price of coal.

Royalty is an amount payable by a lessee to the lessor for removing or consuming a mineral as per Section 9 (1) of the Mines & Minerals (Development & Regulation) Act, 1957. Section 9 (3) of the Act empowers the Central government to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification.

The revision is done by amending the particular entry of the royalty rate for the respective mineral in the Second Schedule of the Act. However, due to non-revision of the rate of royalty every three years, the state loses a sizeable quantum of revenue in respect of mining royalty.

Moreover, the state government has pointed out that in some minerals, there are super normal profits, especially in bulk minerals like iron ore. While the cost of production has remained the same or even decreased, the market price has increased nearly 10 times in the last decade.

In case of minerals with super normal profits, it is iniquitous that lessees should gain from these windfall gains exclusively, at the exclusion of the larger public. The state government has therefore, proposed that in such cases, the royalty rates should be increased to 50 per cent so that super normal profits are shared equitably, and used by the state for the larger good of the general public who bear all the negative externalities of the mining industry and there is depletion of non-renewable natural resource endowment.

The mining sector contributes about seven per cent of Orissa's Gross State Domestic Product (GSDP).

Mineral production in the state has moved up rapidly from 369.4 million tonnes in 2003-04 to 1512.3 million tonnes in 2009-10.

Mining revenue collection in the state in the current fiscal stood at Rs 2281.87 crore by December end.