Liberalising loot

Published : Jul 16, 2010 00:00 IST

A GOODS TRAIN at Madgaon station in Goa carrying iron ore on June 5. The National Mineral Policy of 1993, designed to encourage private investment in exploration and mining, opened up 13 major minerals for private investment.-PAUL NORONHA

A GOODS TRAIN at Madgaon station in Goa carrying iron ore on June 5. The National Mineral Policy of 1993, designed to encourage private investment in exploration and mining, opened up 13 major minerals for private investment.-PAUL NORONHA

AFTER being off the radar of public attention for long, the mining industry in India is now in focus. For example, the controversies surrounding the Posco and Vedanta projects in Orissa, involving the acquisition of large tracts of land for mining purposes, have drawn attention to the damage that could result to livelihoods and the ecology from mining. More recently, in distant Karnataka allegations of collusion between mining interests and politicians in power, leading to large and not always legitimate profits garnered at the expense of the local people and the state exchequer, have led to the resignation of the State's ombudsman.

The mining sector is increasingly seen as one in which the worst features of capitalism as a profit machine combine with illegality and corruption to provide a site for primitive accumulation based on plunder and unequal exchange. This is only partly because after economic liberalisation mining has delivered fortunes to those private interests that have been able to find a foothold in the industry. The industry has also drawn attention because mining areas have become the sites of violent political opposition to both private capital and the state.

Analyses of the reasons for these developments point in many directions. Displacement, loss of traditional livelihoods of tribal populations and ecological destruction are, of course, prime among them. In addition, in some regions and States mining interests from outside reportedly rule the areas they exploit by maintaining private armies or by entering parliamentary politics to win influence and control the administration of mining areas and the framing and implementation of mining policy. Power at one pole, especially if violently exercised, generates dissent and opposition at the other, which too can turn violent.

This kind of carpetbagger capitalism, in which wealth accumulation by outsiders who extract mineral resources occurs at the expense of local populations, whose traditional habitat and means of livelihood are damaged, is not specific to mining in India. It is true of all locations where the state has not either regulated mining firms or interests or even worked in their favour when resources are being mined.

Mineral resources are non-reproducible and, therefore, the duration for which they can be exploited is limited and the returns from mining dwindle as the best quality ores and the most accessible strains are exhausted. On the other hand, for geological reasons, individual mineral resources are concentrated in particular regions of the world and in specific areas within those regions and nations. Rising global demand, irrespective of where it emanates from, therefore, encourages the quick exploitation of available mineral resources from a few locations.

The difficulty is that in most cases mining, which requires extracting the resource, is destructive of the environment in which it occurs. Large swathes of land have to be excavated. If the area has forests, they have to be cleared. If it is inhabited, the local population has to be relocated and rehabilitated. If water is required for mining purposes, local water sources must be drained. And if the process of mining releases toxic material, ecological and human damage through pollution of various kinds will occur unless efforts are made to collect those materials and put them to use or they are disposed of safely.

The dimensions of the problem are not easy to understand. Consider the situation in India, for example. Taking a national view, mining does not seem to be an overwhelmingly important activity in the country. The mining and quarrying sector currently contributes only around 2 per cent to India's gross domestic product (GDP). Further, more than 60 per cent of this value is due to fuels, a significant share of which is produced offshore, away from human habitation. Offshore areas accounted for 18 per cent of the value of mineral production in 2009-10. (Though, this seems to shift the problem away from where it affects us humans, the BP spill in the Gulf of Mexico should remind us that even this is not true.) The resulting seemingly minimal economic relevance of mining conflicts with the role it is increasingly playing in generating discontent and opposition within the country.

Mining & political conflict

However, the reasons why mining areas are the sites for political conflict are many. To start with, where the adverse effects of mining are inadequately remedied, the consequences for the affected can be dire. Secondly, though, according to the Ministry of Mines, India produces as many as 86 minerals, a few minerals account for a dominant share of non-fuel mineral production. These include coal, lignite and bauxite (in which India ranked third among the world's producers in 2007-08), iron ore (fourth) and manganese (fifth). Moreover, these resources are concentrated in a few contiguous areas.

During 2009-10, while mineral production was reported from 32 States and Union Territories, among onshore areas a few States dominated: Andhra Pradesh (with a 12.24 per cent share in production by value), Orissa (11.85 per cent), Chhattisgarh (9.18 per cent) and Jharkhand (8.79 per cent). Together with the offshore areas, they account for 60 per cent of mineral production by value. They also are home to large tribal populations. And they are among the States where violent political movements are on the rise.

It is nobody's case that no mining should occur. The case is clearly for restricting the extent of mining, keeping in mind the common good and taking into account immediate and long-term costs and returns. In fact, almost everybody swears by certain principles. While different mineral resources should be exploited to differing degrees, given the technological options and the benefits from production using mineral raw materials, the effort should be to minimise the social costs.

Ecologically sensitive areas should not be mined. Deforestation should be kept to a minimum. Compensation, relocation and rehabilitation must be organised in ways that are fair. And pollution should be minimal after abatement.

However, recognising all this is not enough. There must be laws, institutions and processes in place, which ensure that decisions on the extent and means of mineral extraction in different locations are taken in ways that ensure social participation, especially of those who will be affected adversely. The fact of the matter is that while lip service is paid to such institutions and processes, they do not work in this country (and in many others in the world as well).

In fact, the complex division of labour between the Central and State governments with regard to the framing and implementation of mining policy obfuscates accountability to a substantial degree, only worsening matters.

This has become more of a problem in recent years because of the ways in which the post-1991 policy of economic liberalisation and reform have affected the mining sector. As noted above, mining is an area where most costs are social and fall heavily on those not directly involved in mineral extraction.

If in such an environment private producers operating purely for profit are given an important role, it generates the classic situation where private returns and social costs diverge substantially, especially when private returns are high and social costs are not required to be compensated for.

Preserve of state

This situation is relatively recent in India's post-Independence history. During much of that period mining was largely a preserve of the state. Under the Industrial Policy Resolution, 1956, the mining of major minerals such as coal, lignite, mineral oils, iron ore, copper, zinc and atomic minerals was made the exclusive preserve of the public sector.

It was only in the extraction of minor minerals that the private sector was allowed along with the public sector. As a result, much of the mining occurred within the ambit of the public sector. Even today, the public sector continues to play a dominant role in mineral production, accounting for more than 70 per cent of the total value of production.

It is of course true that the operations of the public sector, too, resulted in displacement, ecological damage and loss of traditional livelihood opportunities. But with the public sector under managements that were accountable to Parliament, the degree to which it could ignore social costs was limited.

Moreover, with the public sector not under pressure to privilege profit above all else, it was in a position to provide for compensation, rehabilitation and abatement. The system was not inherently biased towards discounting the social costs of mining operations.

Under that regime, therefore, the problem was largely one of inadequate investment to exploit effectively and safely the mineral resources of the country. In fact, even when shortages in some areas encouraged small-scale illegal mining, it was often more in the nature of petty production, sustained of course by the presence and exploitation of large trading capital.

Mineral policy

Matters began to change in the 1990s, with the post-liberalisation shift to the National Mineral Policy (NMP) of March 1993. Designed to encourage private investment in exploration and mining, the policy opened up 13 major minerals iron ore, manganese ore, chrome ore, sulphur, gold, diamond, copper, lead, zinc, molybdenum, tungsten, nickel and platinum for private investment. Further, the policy expressly provided for foreign technology and foreign participation in exploration and mining. Initially, foreign direct investment (FDI) was allowed, subject to clearance by the Foreign Investment Promotion Board (FIPB), up to 50 per cent of equity (with no limit for captive mines). However, additional FDI holding was provided for on a case-by-case basis. In 1997, FDI up to 50 per cent was taken out of the purview of the FIPB and put on the automatic approval route, and in February 2006 FDI up to 100 per cent was permitted in mining.

Though the initial response to liberalisation was lukewarm, there has been a rush of investment into the area in recent years. According to an estimate made by the Indian Institute of Metals in 2009, a sum close to $300 billion is expected to be invested in the metals and mining sectors in eastern India over the next few years. This is six times the aggregate investment made since Independence. Much of this investment is to occur in the mineral-rich States of Orissa and Jharkhand followed by Chhattisgarh and West Bengal.

The government has argued that this liberalisation, introduced to attract much-needed investment into the mining sector, has been accompanied by new rules, guidelines and measures to ensure that the benefits are distributed fairly. The opposition and civil society activists, on the other hand, argue that there is no tooth to whatever legislation is in place and little commitment to implementing many of the regulations that are available. The state is most often seen as colluding with private operators at the expense of local populations.

As a result, argue critics, in a State like Orissa the rapid pace of mineral exploitation has contributed little to the development of the State. According to a study by Banikanta Mishra ( Economic & Political Weekly, May 15, 2010), from 1993-94 to 2003-04, the extent of mineral exploitation increased by 10.3 per cent a year, with the value of minerals extracted rising at 12.8 per cent per annum. Much of this was for export, with the quantity of mineral exported out of the state rising by 15.7 per cent a year. On the other hand, the number of workers employed in mining fell by 4 per cent annually, even while ecological damage and livelihood loss worsened standards of living.

That there is reason for cynicism is illustrated by the delay in formulating and approving appropriate alternative legislation to replace the Mines and Minerals (Development and Regulation) Act of 1957. The Ministry of Mines is pushing for legislation that mandates, among other things, the sharing of profits from mining with the local population and State governments.

The new law seeks to make sharing of at least 26 per cent of profits with the local population mandatory. According to reports, the Law Ministry, influenced by other sections in government, is opposed to these changes. Union Minister of Mines B.K. Handique, who has been vocal on the matter, has reportedly received no response to his efforts to get the draft legislation cleared and taken to Parliament.

Clearly then, the ethos of liberalisation, which privileges private sector production and celebrates profitmaking, is one in which an appropriate mining policy will prove difficult to formulate, let alone implement. Public control over mining rights and mining activity in the pre-liberalisation period was not driven by socialistic motives but by the recognition that a sustainable mining strategy cannot be evolved when the activity is undertaken privately. The retreat from an interventionist policy, the evidence suggests, delivers the kind of outcomes that enhances the wealth of some while increasing the deprivation of the majority in India's mining belt, leading to violent forms of protest.

The message is clear. Liberalisation is not a means of increasing the efficiency of the system. It is a policy that facilitates a process of primitive accumulation that leads to social disruption.

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