Hocking the family jewels for a song

  • Claude Alvares and Rahul Basu
  • Updated: Mar 17, 2015 23:40 IST

The issue of recovering the full extent of the value of our natural resources from parties to whom they are being assigned has reverberated throughout the economy ever since the Supreme Court delivered its judgements in the 2G scam (dealing with the State’s earnings from selling spectrum) and on coal block allocations.

In both instances, past practice and legal provisions had unwittingly handed these resources to parties at a pittance.

Under the Constitution, the states (not the Centre) are the owners of sub-soil naturally occurring minerals. These resources are owned equally by the public, and held by the State as public trustee. The Supreme Court has held that when alienating such natural assets, the State should get its full value – else, the public is cheated. It has also held that “if precious and scarce natural resources are alienated for commercial pursuits of profit maximising private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution”.

Auction procedures now installed have generated some Rs 3 lakh crore from both coal and spectrum sale. Why then has the same government opted for a two-faced proposal for alienating valuable minerals like iron, bauxite and manganese?

As the new amendments to the Mines and Minerals Act, now before the Rajya Sabha’s Select Committee, show, only one category of mining leases (new grants) will face the auction route. For the rest, the government has succumbed once again to the pressure of mining lobbies and opted to continue with the policy of renewing expired leases, bypassing auction, and thus forgoing the possibility of enhanced or maximum earnings.

For instance, those who have a reconnaissance or prospecting licence can claim preferential treatment in obtaining rights to the mining lease thereafter (without auction). In the week before the Mines and Mineral Development Regulation ordinance (MMDR) was notified, the Goa government, privy to inside information from the Centre, approved 88 iron ore mining leases, enabling them to bypass auction for another decade.

But, wait, this is hardly the way we manage the family jewels.

Indian conduct with assets like gold is exemplary. Instead of sale, loans are taken against gold. The loan is repaid and the gold regained at the earliest opportunity. If the gold must be sold, the expectation is that the sale of the asset must capture 100% of its value. This is what we call the “capture rate”. But in the case of mineral ore (and till recently, also in the case of coal), we captured less than 5% of the value. International data show entire countries achieving capture rates greater than 90%, using methods even better than auctions.

Look at the miserable Goa scenario. Over an eight-year period, Goa exported 282 million tonnes of iron ore. This reduced the collective wealth of the state by Rs 53,833 crore. In return for the huge decline in common wealth, the state received only Rs 2,387 crore as royalty, less than 5% of the value! In comparison, total government receipts for that period from all sources were only Rs 27,402 crore, approximately half of the assets lost.

The provisions of the new MMDR Amendment Bill 2015, by saving mining leases from auctions, continue this wholly bankrupting method of dealing with the country’s natural wealth owned in principle by all. This is nothing but a second enclosure movement, another instance of cornering wealth of the public by the rich. Alternatively, one could call it a highly regressive hidden poll tax. We all thought such taxes died with Aurangzeb.

Claude Alvares and Rahul Basu are researchers with the Goa Foundation The views expressed by the authors are personal

The views expressed by the author are personal

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