Unlocking India’s mining potential with transparency & accountability

Mining has the potential to shape and affect economies directly and indirectly. Mining brings employment, government its revenues, and opportunities for economic growth and diversification. However, market fluctuations, economic and public institutions, and resource revenues can present challenges in converting natural resource wealth into sustainable economic growth and development. India has the potential to produce $400-500 billion worth of oil and gas, gold, silver, iron ore, copper, coal, calcium, rock phosphate and others. It is bound to generate substantial revenues for the government, which will be helpful in developing infrastructure for the country.

According to recent estimation, the demand for commodities has been strong but supply has been constrained. This has resulted in increased import. While India’s demand for mining commodities will increase rapidly, likely constrained growth of the mining sector will continue to increase the demand-supply gap. To ensure “Make in India” becomes a reality, it is imperative to grow the mining sector. The mining industry can propel the economy by creating employment, meeting the ever-growing demand of the downstream industries such as manufacturing and infrastructure, and also through increased fiscal contributions.

However, a higher tax burden on the mining industry in India compared to other resource-rich countries is making mining an unviable activity and driving away investments from the sector. A huge gap has been found between the effective tax rate (ETR) on mining in India vis-a-vis other mineral-rich nations such as Australia, Canada, South Africa, the US and Mongolia. Data by the Federation of Indian Mineral Industries (Fimi) shows that the ETR on an iron ore mine in the country, after including a cocktail of levies, comes to 64 per cent in the case of new mines allocated after the amended MMDR Act, 2015. 

For the older mines, it is still higher at 69 per cent. The ETR excludes service tax at 15 per cent of the royalty, 10 per cent tax levied by the Supreme Court in Goa and Karnataka and the Forest Development Tax (FDT) levied by the Karnataka government. That apart, Odisha, the largest iron ore producer, levies the highest royalty rate on even the lowest grades of iron ore fines. Adding fuel to the plight was the recent  Supreme Court verdict against leading mining companies for illegal mining in Odisha which directed them to pay a compensation of about Rs.17,576 crore. 

The apex court has laid down the elements of transparency, sustainability and conservation in its verdict in the terms of reference for the panel appointed by the government to review NMP 2008. The terms of reference was very crucial for the overall mines sector which included environmental protection, assessment of carrying capacity of mining activities in each specific mineral-bearing region, improved survey and exploration practices, manpower development in line with projected growth of the sector and development of strategic mineral resource exploitation.  

Now, experts opine that the Supreme Court order will not only have repercussions for mining across the country but also for coal mines operating without environmental clearances and industries operating with clearances obtained under the 1194 Environment Impact Assessment order.