The Bill proposing comprehensive amendments to the Mines and Minerals (Development and Regulation) Act, 1957, (or MMDR Act) deserves to be examined in some detail.

The Indian mining sector, which was opened up in 1994, has failed to attract significant FDI flows. It was expected that the sector would contribute about 8 per cent of the GDP. But its contribution has declined from 2.7 per cent in 2005-06 to 2.1 per cent in 2011-12. The sector has suffered high taxation. While the effective taxation for major international mining companies in other countries is 35-40 per cent (China 32 per cent; Russia 35 per cent; Australia 39 per cent; Chile 40 per cent; Canada 35 per cent), for India it will exceed 60 per cent, if the new law comes into force.

The draft Bill has suggested that allocation of mineral concessions in the case of prospecting licences and mining licences should be through competitive bidding, where sufficient evidence of mineral deposits has been established.

COMPETITIVE BIDDING

It needs to be appreciated that if bidding is done without ascertaining the availability of mineral resources, it may lead to speculation with risk of overpaying. Bids will also be impacted by the timing of auction i.e. high prices during booms and suppressed prices during slow growth.

Moreover, a lessee would like to recover the cost quickly and go for selective mining. This will increase the input cost and the price of the final product. No country except Russia and Kyrgyzstan (for coal) has taken the auction/bidding route. Allocation of minerals through the competitive bidding route could be considered only in the case of proven reserves.

As the auction price will be for entire deposit, lease rights should exist till the deposit lasts. However, auctioning of proven reserves will take a long time (10-15 years) as most of the minerals are unexplored. Till such time, for non-proven reserves, a transparent system based on first-cum-first-served should be acceptable.

STATE GOVT POWERS

In the draft Bill, the power to grant and extend mineral concessions is proposed to be transferred to the State government. However, concessions for coal minerals, atomic minerals and beach sand minerals shall be granted and extended by the State Government with the prior approval of the Central Government.

Apart from these, there are other minerals as well which are of national importance, covered in Part ‘C’ of first Schedule of MMDR Act 1957 (asbestos, bauxite, chrome ore, copper ore, gold, iron ore, lead, manganese ore, precious stones and zinc).

Mineral concession for these, crucial for development of the economy, should also be granted and extended by the State Government with the prior approval of the Central Government.

The track record of disposal of mineral concessions by States has not been encouraging, as more than 50,000 mineral concession applications are pending in various States, along with thousands of renewal applications. The Centre should, therefore, have a greater say in such matters.

TOO MANY LEVIES

Mining industry is subject to royalty, surface rent, compensatory afforestation, forest development tax in Karnataka, among others. The proposed Bill suggests additional taxes and levies like contribution to District Mineral Foundation (DMF), Central and State cess, CSR, relief and rehabilitation, and at least one share of the company to project-affected people. The draft MMDR Bill proposes that industry pay 100 per cent additional royalty for non-coal minerals and 26 per cent profit for coal and lignite towards the DMF.

The proposed amendment talks about contribution to DMF on a provisional basis even if the there is no production.

A study by the Chawla Committee on the likely distribution of royalties for major minerals reveals that distribution will be extremely skewed; 83 per cent districts will have no revenue to speak of and only 57 out of 627 districts (9.1 per cent) will get 96 per cent of the royalty.

The proposed rate is too high and would create inflationary pressure. Contribution to DMF should be a reasonable percentage of royalty (say, 26 per cent) for all minerals, including coal. In the draft MMDR Act, surface rent has been suggested at a rate prescribed by State government. It is desirable that the levy should have a linkage with land revenue, so that surface rent is not set arbitrarily.

The draft Bill proposes levy of a State cess up to 10 per cent of royalty. Levy of a State cess will put additional burden on the industry. It would be better if State taxes and duties were to be adjusted with royalty.

BUSINESS INTERESTS

Another proposed amendment provides for making mining data, including a plan of operations, available in the public domain, or an official Web site. Data relating to plan of operations being confidential in nature, this amendment proposal needs to be reviewed.

All the amendments proposed in the draft Bill would make the amended Act a lengthy legislation, with 139 sections, against 33 in the present Act.

This is because a number of less fundamental issues which ought not to be bestowed the rigidity of a law find place in the Bill.

They need to be incorporated as Rules so that these can be modified as and when necessary. There is a need for insulating the sector from over-taxation and being less competitive. A holistic approach would place the sector on a sustainable growth trajectory.

(The author is a former Coal Secretary to the Government.)

(This article was published on August 16, 2012)
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