This article critically appraises the incumbent regulatory mechanism in minerals and proposes a redrawal of the authority of central and state governments. It argues that for ensuring intra-generational and inter-generational equity the ownership rights over minerals should be vested with the state governments and the regulatory power with the central government. State governments should be provided with adequate elbowroom to mobilise revenue for the development of local communities in mining areas. Therefore, the present system of uniform royalty rates determined by the central government should be removed and states should be free to determine their royalty rates and other levies.

Amarendra Das (amar@cds.ac.in) is a research scholar at the Centre for Development Studies, Thiruvananthapuram.

Economic & Political Weekly

EPW

T

This paper is organised as follows. Section 1 briefly states the legal framework of India for the ownership and management of minerals. Section 2 gives a brief account of the institutional failure to safeguard the environment and interest of local communities. Section 3 explains the benefits of mining accruing to the state governments. Section 4 scrutinises the state initiatives to raise additional revenue, which are inhibited by the union legislation, under law and economics framework. Section 5 concludes with a proposal to amend the present regulatory mechanism.

1 Rights over Minerals

Apposite institutional mechanisms are central to ensure economic efficiency and equity in sharing the benefits of mineral resources. It has been argued elsewhere that for minimising the transaction cost in the flow of minerals and ensuring

major minerals defined in the Schedule A2 of the Industrial Policy Resolution (IPR) 1956. The regulatory power over minor minerals enlisted under Schedule B has been left with state governments. The jurisdictions of central and state governments over minerals have been clearly defined in the Mines and Minerals (Regulation and Deve lopment) (MMRD) Act 1957. The central government regulates the major minerals by controlling exploration, extraction and trade of minerals and determining the royalty rates.

Section 2 provides an account of the institutional failure to safeguard environment and the interests of local communities.

2 Institutional Failure

Environmental costs in the mining areas are enormous and accrue in many forms, namely, deforestation, loss of biodiversity, extinction of water bodies, pollution of water (groundwater and surface water), air and noise. Social costs of mining are witnessed through many ugly faces, namely, displacement of local communities, loss of livelihood, devastation of agricultural land, health problems, and other psychological trauma caused by the said reasons.

These costs seem to be overburdened for they fall on the most vulnerable sections of society. The Centre for Science and Environment (CSE 2008: 3) notes that in India almost all its minerals are in the same regions that hold its greatest forests and most abundant river systems. These lands are also largely inhabited by India’s poorest and most marginalised people – the scheduled tribes and scheduled castes – who depend on the very same forests and watersheds for their survival. Fernandes et al (1997) figure out that between 1950 and 1991, mining displaced the second highest number of people amounting to 25.5 lakh. Unfortunately, not even 25% of these displaced persons have been resettled.

Mining activities are regulated by a slew of environmental laws. Water (Prevention

NOTES

and Control of Pollution) Act 1974; Forest Conservation Act 1980; Air (Prevention and Control of Pollution) Act 1981 and

Environment Protection Act 1986. As per the Environmental Impact Assessment (EIA) notification dated 27 January 1994, mining projects of major minerals of more than five hectares lease area require environmental clearance. After the Supreme Court judgment of 18 March 2004 (in the matter of writ petition (civil) 4677 of 1985, M C Mehta vs Union of India and Others) the said EIA notification was amended on 28 October 2004 to include all mining projects of more than five hectares.

Environmental clearance procedure has three components. First, an EIA study has to be submitted as part of the clearance procedure and there are special rules relating to the formulations and appraisal of the EIA. Second, a public hearing (PH) has to be conducted and the procedure for the same is laid down in detail. Third, an environmental management plan (EMP) has to be submitted and clearance for the same separately obtained. Under EIA, mining companies are expected to undertake a comprehensive assessment of the probable environmental impacts accruing in the mining areas and it provides for ceasing mining operation in environmentally sensitive areas. In order to incorporate the views of local people on the mining projects the policy provides for holding public hearing in the mining regions. Environmental plans provide the strategy to be adopted by the mining firms to mitigate the environmental damages such as forest degradation, pollution of air, water and noise.

Mining activities are, thus, regulated by the Pollution Control Board (for air and water), Ministry of Environment and Forest, clearance are reportedly undertaken secretly without the knowledge of local people. Compensatory afforestation programmes remain confined to office documents. Similarly, enormous negligence is reflected in the management of overburdened dumps and other hazardous wastes. Mining firms are alleged to run the effluent treatment plants only during the irregular and prior informed visit of pollution regulation authorities. The degree of negligence by these regulating agencies is evidenced from the alleged environmental clearance accorded to the Vedanta Alumina for bauxite mining at Lanjigarh in the Kalahandi district of Orissa.3

Furthermore, the current provisions for mitigating the environmental and social damages in mining areas have not been adequate and reflect the apathy of bureaucracy to resolve these problems in a participatory approach. This is well reflected in the recommendation of the report of the Expert Committee on the “Road Map for Coal Sector Reforms”. The report states that:

…public consultation degenerates into Resettlement and Rehabilitation/ Land compensation/job related issues. …due to the “tolerant” attitude of State officials, the PH gets entangled in this and other local/State National political issues. Central government should issue …strict instructions that the PH should focus only on relevant environmental related issues… (Government of India 2007: 42).

Environmental and social damages are not mutually exclusive rather the former

has serious bearing on the latter. Therefore, both issues need to be addressed together and in a participatory manner. Public consultation for integrated environmental and social impact assessment (ESIA) should be made mandatory while clearing the mining proposal.

Having discussed the institutional failure to mitigate environmental and social costs, now we move on to examine the benefits of mining accruing to states.

3 Benefits to States

Mineral-rich states derive a sizeable amount of revenue from mining. A major source among them is the royalty collected from mining firms. Besides, states collect dead rent from lessees who have not been operating their mines and thus not paying any royalty. States also receive some revenues from the initial application fee payable by a concession seeker, annual fee payable by reconnaissance permit (RP)/

pp

ros-ros-

source of revenue from

Table 1 which shows its

contribution to the total

revenue receipts (TRR) of

EBS News Agency

1180, Sector 22-B Chandigarh 160 022 Ph: 2703570

vol xliv no 10

EPW

NOTES

authority to raise a revenue and to choose the methods of doing so; it has also general authority over the regulation of relative rights, privileges and duties, and there is no rule of reason or policy in government which can require the legislature, when making laws with the one object in view, to exclude carefully from its attention the other. Nevertheless, cases of this nature are to be regarded as cases of taxation. If revenue is the primary purpose, the imposition is a tax. Only those cases where regulation is the primary purpose can be specially referred to the police power. If the primary purpose of the legislative body in imposing the charge is to regulate, the charge is not a tax even if it produces revenue for the public (Cooley, ibid: 98-99 as cited in the above case).

States should have enough autonomy and rights to mobilise revenue in their own sphere. The apex court, in the case of the

Automobile Transport (Rajasthan) Ltd vs The State of Rajasthan and others (1963) 1 SCR 491, in a seven-judges bench, held that:

if it be held that every law made by the Legislature of a State which has repercussion on tariffs, licensing, marketing regulations, price-control, etc, must have the previous sanction of the President, then the Constitution insofar as it gives plenary power to the States and State Legislatures in the fields allocated to them would be meaningless. A reasonable tax or fee levied by State legislation cannot therefore be construed as trenching upon Union’s power and freedom to regulate and control mines and minerals (emphasis added).

The Constitution of India provides states the right to collect tax from its land. Therefore, a tax related to the land is permissible. However, here it should be kept in mind that the subject of tax is different from the measure of the levy. A financial levy must have a mode of assessment but the mode of assessment does not determine the character of a tax. To be a tax on land, the levy must have some direct and definite relationship with the land. So long as the tax is a tax on land by bearing such relationship with the land, it is open for the legislature for the purpose of levying tax to adopt any one of the well-known modes of determining the value of the land such as annual or capital value of the land or its productivity. The methodology adopted, having an indirect relationship with the land, would not alter the nature of the tax as being one on land. The apex court in case no: Appeal (civil) 1532-1533

Economic & Political Weekly

EPW

March 7, 2009

of 1993 held that merely because a tax on land or building is imposed by reference to its income or yield, it does not cease to be a tax on land or building. The income or yield of the land/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. No one can say that a tax under a particular entry must be levied only in a particular manner. The legislature is free to adopt such method of levy as it chooses. So long as the essential character of levy is not departed from within the four corners of the particular entry, the manner of levying the tax would not have any vitiating effect.

5 Conclusions

In fine, it is found that while the incumbent institutional structure provides enough scope for sharing the benefits of minerals at a global level, its costs (environmental and social) are disproportionately borne by the local communities. For the efficient management of natural resources and conservation of environment, a decentralised approach needs to be adopted by taking the local communities into confidence. In order to ensure the intra-generational and intergenerational equity the central gov ern ment should retain the regulatory power. However, for the development of minerals and local communities, states should be given enough elbowroom to generate adequate revenue. Therefore, the present system of uniform royalty rate determined by the central government should go and states should be free to determine their royalty rates and other levies.

Notes

1 See Das and Joe (2008). 2 Namely iron ore, coal and lignite, mineral oils, mining of iron ore, manganese ore, chrome-ore, gypsum, sulphur, gold and diamond, mining and processing of copper, lead, zinc, tin, molybdenum and wolfram and minerals specified in the Schedule to the Atomic Energy (Control of production and Use) Order, 1953 (MSME 2007). 3 See the Report by the Central Empowered Committee in IA No 1324 regarding the alumina refinery plant being set up by Vedanta Alumina at Lanjigarh In Kalahandi district, Orissa dated: 21 September 2005, available at www.cgnet.in/ Min/CEC%20on%20Vedanta.doc

References

Centre for Science and Environment (2008): “State of India’s Environment: A Citizens’ Report”, Souparno Banerjee (ed.), Rich Lands Poor People: Is Sustainable Mining Possible?, New Delhi.

Das, Amarendra and William Joe (2008): “Community Participation in Monitoring Coal Production”, Economic & Political Weekly, Vol XLIII, No 6: 77-79.

Fernandes, Walter et al (1997): “Rehabilitation Policy and Law in India: A Right to Livelihood” (Indian Social Institute: New Delhi).

Government of India (2006): “National Mineral Policy: Report of the High Level Committee” (New Delhi: Planning Commission), December.

– (2007): “The Expert Committee on Road Map for Coal Sector Reforms: Part-II” (New Delhi: Ministry of Coal).

Sarakaria, R S (1995): “Sarakaria Commission Reports: India, Centre State Relations Commission” (New Delhi: Government of India).

Supreme Court of India (2004): “CASE NO: Appeal (civil) 1532-1533 of 1993”, http://judis.nic.in/supremecourt/qrydisp.aspx?filename=25825. Viewed on 4 July 2008.

STATEMENT about ownership and other particulars of newspaper ECONOMIC AND POLITICAL WEEKLY as required to be published in the first issue of every year after the last day of

I, K Vijayakumar, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Mumbai (K Vijayakumar) March 1, 2009 Signature of Publisher

vol xliv no 10 109