The Union Cabinet’s clearance of the proposal to repeal the existing Mines and Minerals (Development and Regulation) Act and replace it with a new legislation may help dispel the notion of continued stasis in government policy making. However, this gain in perception would be more than neutralised by the adverse effects the provisions of the new Bill would have on the mining industry. The government has been concerned about growing popular resistance to mining projects, on the grounds of corruption in the leasing of mines as well as unhappiness with the rehabilitation and compensation packages for displaced land owners and other locals. However, the solution the new Bill has proposed is unlikely to achieve many of the stated objectives for which the legislation has been conceived. On the contrary, several provisions of the proposed Bill will give rise to a host of more complex problems and, worse, may well sound the death knell for India’s mining industry.
While the provisions for creating a national mining regulatory authority, to be armed with penal powers to prosecute errant miners, and introducing a transparent process for bidding mining projects will offer welcome relief, the new regime also proposes a benefit-sharing system that could lead to many avoidable problems. For instance, it obliges coal mining companies to share 26 per cent of their profits with a mineral development fund that will use these resources for the benefit of people and areas affected by mines. Similarly, non-coal mining companies will have to fork out an equivalent amount of their royalty dues and deposit that with the fund. Going by rough estimates, the mining industry’s annual burden as a result will be over Rs 15,000 crore. In other words, the new Bill will increase the pre-tax financial burden on coal companies from the existing 47 per cent of profit to 61 per cent. The additional burden would be more for iron ore mining companies — the pre-tax levy going up from 43 per cent now to 55 per cent. Worse, the new provisions of the Bill would completely erode the financial viability of bauxite mining companies — their additional burden would double from 55 per cent to 110 per cent of their pre-tax profits. Nowhere in the world is the pre-tax financial burden on mining companies as high as this. As the pre-reforms era of high income taxes showed, compliance levels are bound to see a precipitous fall and mining companies would be forced to devise novel accounting methods to avoid the additional financial burden the new Bill might impose on them.
While the mining industry must bear the burden of managing the environmental consequences of its actions, the livelihood of local people should not be adversely affected. However, methods such as those suggested in the proposed Bill can be counterproductive. Therefore, a more reasonable and affordable benefit-sharing system should be introduced. Unfortunately, the new Bill has only sought to expand the size of the bureaucracy required to implement it. With Rs 15,000 crore of additional funds flowing into the coffers of the District Mineral Development Fund, the government will create new posts for its officials who would then devise ways to use the resources at their disposal ostensibly to benefit the mining areas and the local people displaced by the mining projects.
