Wednesday, December 8, 2010
The decision taken by the Pranab Mukherjee-led Group of Ministers to ensure mining corporations share 26% of their net annual profits with displaced locals is highly laudable. The mining sector in India is in urgent need of cleanup. In almost every resource-rich part of the country, mining mafias have emerged that have vice-like control over the extraction of natural resources. Much like in post-Soviet Russia, India’s vast quantities of mineral wealth have resulted in the creation of a group of mining “oligarchs”, leaders who have utilised their local influence to control the flow of natural resources, often working in connivance with major corporate entities. As these mining oligarchs have become richer, many have chosen to enter politics; in states like Karnataka and Jharkhand, the mining lobby has direct influence on who sits in the chief minister’s chair.
Corruption in the mining sector is a top-to-bottom affair. People within the mining industry insist they need to pay bribes to everyone involved, from the thekedaar who watches over the mine to the local police officer. In states like Karnataka and Andhra Pradesh, a lot of the most resource-rich areas are under the control of the Naxals, who the oligarchs strike deals with. This is an important source of revenue for the Naxalite movement. The failure to reform the industry speaks of a lack of political will. It also helps fund what Prime Minister Manmohan Singh has called “the gravest threat to internal security.”
However, the decision has not found universal approval within government circles. It was attacked by the head of the Planning Commission, Montek Singh Ahluwalia, who said a 26% profit-sharing ratio would be a big disincentive for corporations looking to invest in the sector. Ahluwalia believes this will be an unwanted drain on companies just at the moment the mining sector is looking to expand its work in India. This is not an atypical decision from Ahluwalia, who seems to believe the role of the Planning Commission is to make life as easy as possible for major corporations, instead of focusing on the needs of the citizenry.
But if the government goes ahead with its plan – and with Finance Minister Pranab Mukherjee backing it, it should have the legs – there are a series of pitfalls they will have to negotiate. The most important is to establish clear and firm guidelines for the delivery of this 26% of profit to locally displaced populations. In an industry already beset with corruption, this is not going to be easy. It is well-known that government rewards and subsidy systems in India are prone to hijack, with allocations only occasionally reaching intended recipients.
The second issue the government will have to fight is there is now a real incentive for mining companies to not declare their profits. While this is less likely in companies that export natural resources, because it becomes almost impossible to under-invoice, companies involved in selling resources domestically will see a direct benefit in under-declaring their profits. The government needs to set up a monitoring agency to make sure local populations are not being deprived of the share they have been promised.
Mukherjee’s scheme is an admirable one in theory. If it is implemented with the care needed, it could have a great impact on some of the poorest parts of India, even as it silences one of the key arguments the Naxalite movement uses.