the mineral wealth and the Maoists in India
By Sugato Hazra
Sherlock Holms would have called it elementary. For us in India it is complex. The link between the luxuries of miners and the desperations of the Maoists in the mineral rich regions of the nation escapes all of us. When somebody pretends to sleep, it is difficult to wake him up. The only saving grace for the nation is that there are views in the cabinet like Pranab Mukherjee’s who told Jayanta Roychowdhury of Telegraph, “To an extent policy makers are to blame for not being able to address the issue of tribal alienation.” He further said, “We have to step up development projects in Naxal-affected tribal areas….”
India’s Mines Minister BK Handique also agrees with him. Handique sees the hidden hands of the merchant miners in the rise of iron ore prices. He calls it, “profiteering” by the merchant miners. Iron ore prices have risen by about 170 per cent between 2003-04 and 2009-10. In fact Handique had proposed a windfall tax on such miners, taking a cue from Australian government. He told The Wall Street Journal that the proposed windfall tax on non-fuel minerals such as iron ore was to claim part of what the government considers high profits earned by the mining sector. “Our proposal is to levy a windfall tax on domestic sales as well as exports of minerals when their (prices) are substantially higher than the cost of production,” The Minister said. “On the lines of a similar proposal in Australia, the new tax is also meant to raise additional revenue for the government. But unlike in the former, India has a predominantly captive production model where mining leases are mostly given out to producers with their own plants to make finished products such as steel. The plan will need to be approved by the Finance Ministry before it can be implemented although it doesn't need parliamentary approval, as is the case in Australia.”
The Mines Minister told the Finance Ministry that while ore prices continue to surge, its cost of production hasn’t changed much. He has a point, how much can the price of digging go up! Profitability of iron ore mining is huge. This money has gone in for conspicuous consumption. In fact the rise in disposable income in Karnataka’s mining capital is luring car makers and retailers to this dusty town.
Luxury auto maker Mercedes-Benz India Pvt Ltd recently had a two-day event to display its cars, including its most expensive Mercedes-AMGs in the dusty town of Bellary. What brought the luxury car maker from its swanky showroom in Bangalore to this dusty town?
“Bellary is a focus market in Karnataka. For the last two-three years, the steel and iron industry has been booming,” admitted Debashis Mitra, director, sales and marketing, Mercedes-Benz India, in an interview with the business paper Mint. The company has sold at least 25 vehicles to mining tycoons in Bellary in the past two years. Its rival luxury car maker BMW is also aware of the importance of Bellary with its huge pile of money. It is planning a satellite dealership in Hospet — the mining hub of Bellary — by the middle of 2011. When the super rich will buy Mercedes and BMW, their minions cannot but buy other luxury cars. So Honda Siel Cars India Ltd expressed its desire to set up a showroom in Bellary.
For Bellary, the climb began when India opened its iron ore reserves to the private sector in 1999. Surging demand from China, compounded by the 2008 Beijing Olympic Games, gave ore exports a sharp boost. Iron ore prices soared from Rs 1,200 a tonne before 2002 to Rs 6,000 a tonne in 2006-2007. The rates now hover at Rs 6,800-7,000 a tonne, despite an apparent slow down in the global economy.
Bellary, the fifth largest iron ore contributor in the country, is estimated to have deposits of 2.5-4 billion tonnes. With a population of around two million, the mining town has a per capita income of Rs 47,607, higher than the Karnataka state average of Rs 41,901. The literacy rate of 57 per cent less than the state average of 67 per cent tells the degeneration that has come with the wealth generation. In 2007 before the global crisis Bellary was emerging as the ‘Private Aircraft Capital of India’, accounting for almost 10 per cent of the market for private flying machines. Of the 50-70 private jets in India, as many as eight private aircraft, including two Bell helicopters, had been in Bellary. Two more private aircraft and two choppers joined the fleet in 2007-08. Mine owners Lad Brothers, politician Janardhan Reddy, Baldota’s flagship iron ore firm MSPL, Bellary Iron Ores (BIOP) and Hothur Iron Ore were some of the prized owners of private aircraft in Bellary.
When so much wealth is at stake predictably minister Handique finds it difficult to have the final say on the issue. Two days after the steel minister BS Handique announced the possibility of windfall tax on iron ore, the Federation of Indian Mineral Industries (Fimi) has opposed the move. FIMI argued that, “Since the government is unable to stop illegal mining, the proposal to put windfall tax is more like regularizing the illegal mining and export of illegally mined iron ore.” Interestingly Handique felt the tax would check rampant illegal mining. But FIMI argued, “How will it collect windfall tax from these (illegal) miners?”
Sharma added that if this windfall proposal is accepted and implemented, this will ultimately lead to a situation when only legal miners will pay the so called “windfall tax” till they find their operations economically viable and close down when they no longer find them profitable. “Despite the good intentions, in course of time, it will be the illegal miners who will rule the roost and defeat the very purpose.”
A windfall tax on mining will necessarily create another roadblock for illegal miners. After all there will be an elaborate government machinery to estimate the ore mined, value that of and collect the money for the exchequer. If one provides for the leakages common in the country business will not be smooth for illegal miners. More important one has reasonable doubt over the FIMI attempt to classify illegal mining as separate from the merchant miners. There is no reason to accept that merchant miners do not indulge in illegal and excessive mining to multiply their profit and help the poor car makers like BMW, Mercedes and aircraft vendors to do some business. The other argument of merchant miners that export of ore would suffer is also not tenable. What India should do is conserve the ore for domestic steel production. The country has assisted Japan, Korea and China for enough number of years to emerge as major steel producers. Should we carry on with the same policy of thoughtless export?
The power of big money over the government is most visible in case of the rich mineral sector. Miners had been lobbying against a clause in the draft MMDR bill that requires miners to offer a 26 per cent stake to families losing land to projects so that companies have more flexibility while providing relief. The current thought is to merge the schemes on annuity payout and equity offering so that companies can choose between the two. An official told media, “The proposal in the draft MMDR Bill to offer 26 per cent of the promoter's quota creates problems for companies having large operations and a consolidated corporate structure.”
The present draft of the MMDR Bill proposes an annual compensation separately by way of allotment of free shares equal to 26 per cent of the company through the promoter’s quota in case the holder of the mining lease is a company, or an annuity equal to 26 per cent of the profit after tax if the lease owner is a person. The government is now diluting the clause to suit the corporations. Under the new proposal on the mines ministry’s table, annuity payout to those losing land will be fixed before start of operations and companies would be asked to provide this benefit either as a cash payout or equity shares or a mix of both. The changes are proposed to be included in the draft after a Group of Ministers (GoM) headed by Pranab Mukherjee completes discussions on all the provisions of the new legislation.
So there are two proposals where Pranab Mukherjee can call the shots. One relating to the windfall tax proposal of Handique. Once approved by the finance ministry the same can be processed. The other is the clause in the MMDR Act. If one goes by what Mukherjee told Telegraph and how the natives were deprived of development the minister would not side with the plunderers of mineral resources. But money can change many a heart. How much it changes that of Pranab Mukherjee remains to be seen by the deprived natives of the mineral zones.
By Sugato Hazra
Sherlock Holms would have called it elementary. For us in India it is complex. The link between the luxuries of miners and the desperations of the Maoists in the mineral rich regions of the nation escapes all of us. When somebody pretends to sleep, it is difficult to wake him up. The only saving grace for the nation is that there are views in the cabinet like Pranab Mukherjee’s who told Jayanta Roychowdhury of Telegraph, “To an extent policy makers are to blame for not being able to address the issue of tribal alienation.” He further said, “We have to step up development projects in Naxal-affected tribal areas….”
India’s Mines Minister BK Handique also agrees with him. Handique sees the hidden hands of the merchant miners in the rise of iron ore prices. He calls it, “profiteering” by the merchant miners. Iron ore prices have risen by about 170 per cent between 2003-04 and 2009-10. In fact Handique had proposed a windfall tax on such miners, taking a cue from Australian government. He told The Wall Street Journal that the proposed windfall tax on non-fuel minerals such as iron ore was to claim part of what the government considers high profits earned by the mining sector. “Our proposal is to levy a windfall tax on domestic sales as well as exports of minerals when their (prices) are substantially higher than the cost of production,” The Minister said. “On the lines of a similar proposal in Australia, the new tax is also meant to raise additional revenue for the government. But unlike in the former, India has a predominantly captive production model where mining leases are mostly given out to producers with their own plants to make finished products such as steel. The plan will need to be approved by the Finance Ministry before it can be implemented although it doesn't need parliamentary approval, as is the case in Australia.”
The Mines Minister told the Finance Ministry that while ore prices continue to surge, its cost of production hasn’t changed much. He has a point, how much can the price of digging go up! Profitability of iron ore mining is huge. This money has gone in for conspicuous consumption. In fact the rise in disposable income in Karnataka’s mining capital is luring car makers and retailers to this dusty town.
Luxury auto maker Mercedes-Benz India Pvt Ltd recently had a two-day event to display its cars, including its most expensive Mercedes-AMGs in the dusty town of Bellary. What brought the luxury car maker from its swanky showroom in Bangalore to this dusty town?
“Bellary is a focus market in Karnataka. For the last two-three years, the steel and iron industry has been booming,” admitted Debashis Mitra, director, sales and marketing, Mercedes-Benz India, in an interview with the business paper Mint. The company has sold at least 25 vehicles to mining tycoons in Bellary in the past two years. Its rival luxury car maker BMW is also aware of the importance of Bellary with its huge pile of money. It is planning a satellite dealership in Hospet — the mining hub of Bellary — by the middle of 2011. When the super rich will buy Mercedes and BMW, their minions cannot but buy other luxury cars. So Honda Siel Cars India Ltd expressed its desire to set up a showroom in Bellary.
For Bellary, the climb began when India opened its iron ore reserves to the private sector in 1999. Surging demand from China, compounded by the 2008 Beijing Olympic Games, gave ore exports a sharp boost. Iron ore prices soared from Rs 1,200 a tonne before 2002 to Rs 6,000 a tonne in 2006-2007. The rates now hover at Rs 6,800-7,000 a tonne, despite an apparent slow down in the global economy.
Bellary, the fifth largest iron ore contributor in the country, is estimated to have deposits of 2.5-4 billion tonnes. With a population of around two million, the mining town has a per capita income of Rs 47,607, higher than the Karnataka state average of Rs 41,901. The literacy rate of 57 per cent less than the state average of 67 per cent tells the degeneration that has come with the wealth generation. In 2007 before the global crisis Bellary was emerging as the ‘Private Aircraft Capital of India’, accounting for almost 10 per cent of the market for private flying machines. Of the 50-70 private jets in India, as many as eight private aircraft, including two Bell helicopters, had been in Bellary. Two more private aircraft and two choppers joined the fleet in 2007-08. Mine owners Lad Brothers, politician Janardhan Reddy, Baldota’s flagship iron ore firm MSPL, Bellary Iron Ores (BIOP) and Hothur Iron Ore were some of the prized owners of private aircraft in Bellary.
When so much wealth is at stake predictably minister Handique finds it difficult to have the final say on the issue. Two days after the steel minister BS Handique announced the possibility of windfall tax on iron ore, the Federation of Indian Mineral Industries (Fimi) has opposed the move. FIMI argued that, “Since the government is unable to stop illegal mining, the proposal to put windfall tax is more like regularizing the illegal mining and export of illegally mined iron ore.” Interestingly Handique felt the tax would check rampant illegal mining. But FIMI argued, “How will it collect windfall tax from these (illegal) miners?”
Sharma added that if this windfall proposal is accepted and implemented, this will ultimately lead to a situation when only legal miners will pay the so called “windfall tax” till they find their operations economically viable and close down when they no longer find them profitable. “Despite the good intentions, in course of time, it will be the illegal miners who will rule the roost and defeat the very purpose.”
A windfall tax on mining will necessarily create another roadblock for illegal miners. After all there will be an elaborate government machinery to estimate the ore mined, value that of and collect the money for the exchequer. If one provides for the leakages common in the country business will not be smooth for illegal miners. More important one has reasonable doubt over the FIMI attempt to classify illegal mining as separate from the merchant miners. There is no reason to accept that merchant miners do not indulge in illegal and excessive mining to multiply their profit and help the poor car makers like BMW, Mercedes and aircraft vendors to do some business. The other argument of merchant miners that export of ore would suffer is also not tenable. What India should do is conserve the ore for domestic steel production. The country has assisted Japan, Korea and China for enough number of years to emerge as major steel producers. Should we carry on with the same policy of thoughtless export?
The power of big money over the government is most visible in case of the rich mineral sector. Miners had been lobbying against a clause in the draft MMDR bill that requires miners to offer a 26 per cent stake to families losing land to projects so that companies have more flexibility while providing relief. The current thought is to merge the schemes on annuity payout and equity offering so that companies can choose between the two. An official told media, “The proposal in the draft MMDR Bill to offer 26 per cent of the promoter's quota creates problems for companies having large operations and a consolidated corporate structure.”
The present draft of the MMDR Bill proposes an annual compensation separately by way of allotment of free shares equal to 26 per cent of the company through the promoter’s quota in case the holder of the mining lease is a company, or an annuity equal to 26 per cent of the profit after tax if the lease owner is a person. The government is now diluting the clause to suit the corporations. Under the new proposal on the mines ministry’s table, annuity payout to those losing land will be fixed before start of operations and companies would be asked to provide this benefit either as a cash payout or equity shares or a mix of both. The changes are proposed to be included in the draft after a Group of Ministers (GoM) headed by Pranab Mukherjee completes discussions on all the provisions of the new legislation.
So there are two proposals where Pranab Mukherjee can call the shots. One relating to the windfall tax proposal of Handique. Once approved by the finance ministry the same can be processed. The other is the clause in the MMDR Act. If one goes by what Mukherjee told Telegraph and how the natives were deprived of development the minister would not side with the plunderers of mineral resources. But money can change many a heart. How much it changes that of Pranab Mukherjee remains to be seen by the deprived natives of the mineral zones.
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