by K Subramanyam
INDIA received a not so envious accolade last week when the Fraser Institute (one of world’s top think tanks) dropped the country from its list of top mining destinations, based on policy and social frameworks. Juxtapose the above with the developments in the mining sectors in the recent past. It is mired by social and judicial activism, resulting in not just economic loss to the institution of State, but also the degradation of whole socio-economic ecosystem.
Goa Judgment: A Further Blow to India’s Mining Image
THE Mining Lease Renewal Judgment by the Supreme Court on Goa will have far reaching impact not only on Goa, but on India’s image as an investment destination.
When Piyush Goyal took charge of Ministry of Mines in July 2016, he announced to work towards raising the mines and minerals sector’s contribution to the country’s GDP by an additional 1 per cent in the next 2-3 years. But, on the contrary, the share has come down from 2.2 per cent to 2.1 per cen in FY17-18.
According to the Fraser Institute Annual Survey of Mining Companies 2016 report, India stands in the bottom 10 countries (97th rank out of 104 countries) in terms of Investment Attractiveness Index along with the countries like Afghanistan, Zimbabwe and Mozambique. China is ranked at 54, much ahead of India.
One of the major reasons for such a poor score is perception about India’s policy factors that affect investment decisions, which include uncertainty concerning environmental regulations, regulatory duplication, the legal system and taxation regime, socio-economic and community development conditions, trade barriers, political stability, etc. These parameters are captured in the Policy Perception Index of the Survey in which India ranks 84th out of 104 countries. The international perception about India’s mining industry and its attractiveness is definitely going to be maligned further from the recent incidence of Goa.
India might have fared nicely in terms of improvement in Ease of Doing Business —jumping 30 notches from 130th to 100th—however the volume of restrictions put by Indian legislative system on mining industry in the form of cap on iron mining (in Goa and Karnataka), high export duty, permission for export (of iron ore from Karnataka) are already sending negative message against the so-called Ease of Doing Business. The latest bout of order from the Supreme Court to wind up iron ore mining in Goa actually sent the chill through the spine of any entrepreneur.
For the last five years, FDI inflows to India have grown every year, thanks to relentless effort of Prime Minister Narendra Modi to attract investment across the globe. FY 2016-17 witnessed the highest inflow of FDI of $43,478 million. However, mining sector could attract only $56 million in FY16-17. Mining in India is still carried out in dated method and it needs high-end technology and equipment to increase extraction, productivity, safety and surveillance. And for that, India badly needs FDI in mining sector. But, who will invest in mining business in India where the very ownership can be snatched away giving just one month’s notice?
Mining is a capital intensive project. To meet the domestic demand for iron ore only, India will require around 437 mt of iron ore by 2030-31, as the National Steel Policy, 2017, which is roughly 240 mt more from current level. India needs around Rs. 36,000 crore investments to augment iron ore supply in order to meet such demand. While the country’s banking sector already reeling under the cloud of NPA, it’ll be really difficult for serious players to raise funds to develop mining assets under such negativity around mining sector.
When India’s Ministry of Mines is redrafting National Mineral Policy and Ministry of Steel is aiming at having 300 mt steel capacity, such developments puts a big question mark on the authenticity of the numbers and plausibility of delivering those.
Iron ore from Goa is mainly exported to countries like China and Japan, which requires enormous effort to establish confidence on timely and regular supply of material as the production and raw material procurement plan cannot be changed frequently. For Goan miners to re-establish that confidence following the three-year-long mining ban is at stake now. Such incidents tarnish India’s image as a reliable supplier which may impact export potential of India.
When India’s growth story is marred by shrinking job creation, a complete halt of mining in such a short notice can make thousands of people become jobless. Moreover, there will be huge amount of loss to the national exchequer in terms of royalty and other taxes while loss of forex earning is estimated to the tune of $600 million from Goa alone.
This is high time that Indian government wakes up and realises that to make ‘Make in India’ happen, ‘Mine in India’ is a must. However, the way India’s mining sector is being intervened by the judicial system, days will not be far when India’s manufacturing industry will lose all its competitive advantage of secured supply of mineral.
Of course there are cases where irregularities were found and it those should be addressed. The top Court of the country duly did it by ordering closure of mines in the beginning of this decade in Karnataka, Odisha and Goa. However, never before the court put an absolute ban in mining activities. The Supreme Court was kind enough to allow mining to an extent where the social-economic ecosystem doesn’t crumble to an extent that an entire generation faces the danger of reaching a point from where no revival would be possible.
A case in point is Goa, where the Supreme Court has ordered no extension of mining leases beyond March 15, 2018. The honourable Court probably only followed the rule book and reached to a conclusion where the arguments of the social activists prevailed over others.
However, what is more appalling is the indifference shown by the State Government when stakes are so high for Goa. Take for example roughly about 70,000 people employed by the Goa mining industry (miner, truck operators, barge operators and many others). Considering a family of 4-5 people, the industry supports about 300,000 people—that makes about 20 per cent of Goa’s population of little over 1,450,000.
At a time when opposition parties on the national level are training guns against Prime Minister Narendra Modi, alleging BJP government’s somewhat failure in creating new jobs, the numbers/table above should ring alarm bells. However, the Goa government looks to be busy highlighting petty issues rather than addressing this grave issue.
Chief Minister Manohar Parrikar and his ministers seem to be busy either commenting on beer-drinking habits of girls or how north Indians are so called ‘scums’ for Goa. Anything on the mining crisis seems to being trivialised and the CM seems to be missing the forest for the woods.
Goa government is only accounting for loss of Rs. 300-400 crore in royalty payments. However, the government is not accounting the loss of equity in socio-economic fabric that includes loss in employment, school dropouts, nourishment, cultural diversity and overall loss to local economy. Apart from direct loss of royalty to Goa, the overall loss is much bigger.
- $1billion loss to the country (20 million tonnes of iron ore export @ $40-45/tonne)
- Rs. 1,000 crore loss of income to State and Central Government (District Mineral Fund, VAT on diesel, GST related, etc.)
- Rs. 1,000 crore loss on account of logistics infrastructure (over 12,000 trucks, nearly 150 barges, ancillary units.)
- Rs. 1,200 crore loss of production costs @ Rs. 600/tonne (operators, escavators drilling)
- Growing NPA loans given to truck operators and mining equipment
- Half of Rs. 2.74 lakh kids may have to dropping out of school
- Spurt in crime rate because of unemployment
The bureaucracy and political class need to correct few things where they have probably erred earlier and because of which the Supreme Court probably ordered for non-extension of leases beyond March 15.
First among those mistakes was a crucial section of MMDR Act (Mineral and Mining Act), which was probably not highlighted by the industry and the Goa government. Section 8A(6) introduced by the 2015 amendment, ought to allow Goan miners to mine till March 2020 even if the second renewals (given in 2015) are bad.
THIS is very crucial as Section 8A is a transitional provision operating till March 31, 2020. Under this, miners in the rest of the country get the benefit but not Goa.
It is appalling to see this approach from the executive and legislature, which in turns makes the judiciary look very tough. But such is the democratic flow chart that legal jurisprudence needs to be funneled through the legislature and executive. And where the legislature and executive fail to be on their mark, the outcome becomes like the one that has come out in the Fraser Institute report.
If the government along with the industry fails to convince the apex court through a review petition, fate of Goa is looking very grim. The rankings in reports like the Fraser Institute report and political leadership may change every year or every few years, but if the building blocks of Goa—standing on two pillars of mining and tourism—fall than only God’s jurisprudence may save a large population of Goa.
VOL. 11 | ISSUE 11-12 | MARCH 2018