‘Canalising’ iron ore exports is not a solution to illegal mining. Only strict regulation is
The government is reportedly considering temporarily “canalising” – routing through a public trading agency – the export of iron ore, before putting in place a proper and suitably elaborate mechanism to control and reduce the menace of illegal mining. Canalising of foreign trade was a part of the era of trade and exchange controls, an era thankfully behind us. The problem with reintroducing it, even as a short-term provision, is that those interests it benefits will use the “emergency” measure to stage a permanent comeback. It moves the location of bribery; it does not remove the incentive to bribe. In any case, there is absolutely nothing to show that canalising will stop illegal mining, even in the short run. Illegal mining is a law-and-order problem for state governments, a straightforward violation that renders mining licences issued by them meaningless. Only proper policing will be able to tackle it. After all, illegal iron ore hardly looks recognisably different from that which is mined by a licence holder from a designated area. How will a state-owned trading firm tell a legal and illegal shipment apart, then? It will have to employ an army of inspectors to ascertain that illegally mined ore isn’t entering the supply chain. That army of inspectors will then need another army, one of security escorts. Does anyone believe that this complicated apparatus will then be just a “temporary” measure?
When the incentives to mine illegally become enormous, there is a tremendous increase in the activity — which not just cheats the exchequer and undermines law and order, but is particularly harmful to the environment. This happened through the 1980s, and again in the run-up to the Beijing Olympics (when iron ore prices were very high). Indeed, the amount of money at stake has totally warped the politics of entire states, such as Karnataka, for the last few years. The law cracked down on the Reddy brothers of Bellary; but such is their clout, even then, that their rebel candidate trounced the BJP’s official candidate in the recent Bellary South by-election. There is absolutely no question that the politics-warping, environment-destroying nature of illegal mining makes it one of our most pressing problems. But there is, after all, a comprehensive mining legislation before Parliament that is meant to address precisely this. With this regulation in place, and with the moderation in global prices, the scale of the problem will no doubt begin to be addressed.
But mining will only become a well-regulated, “normal” industry in India if state intervention is carefully considered. When the court intervention ceases, cries – such as those from the Shah Commission – to stop iron ore exports altogether will not die down. It is important to note that this is not a useful solution, and quite as bad as canalising. It serves various interests: the steel industry has long argued for it, as it will benefit from the consequent lower domestic prices. It is ridiculous to suppose, however, that it would end the problem: if domestic steel-making capacity rises properly, hiking the demand for iron ore and its price, illegal mining will thrive again, even without exports. There is no alternative to introducing stringent, independent regulation in India’s most visibly corrupt and underperforming sector.
