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Un-constitutional mining in Goa, implications for India

by- Goa foundation

As you know, I volunteer with Goa Foundation. We are the petitioners in the recent PIL on illegal mining in Goa. In the course of the PIL, we came across some jaw-dropping numbers of how our children’s inheritance is being lost. This is clearly unconstitutional. We have made a proposal to the Goa government on how this can be rectified for the future. This is very important as the amounts at stake are mind boggling.

In order to change the system, we will need the support of lots of people. I’d appreciate it if you can forward this to economists, lawyers, mining and human rights activists, government servants, businessmen, journalists, etc. Basically, people who would work for India’s interests and have the patience to read long notes (as the matter is complex in its ramifications).

How the existing system is un-Constitutional

The Constitution of India implies two fundamental principles – Public Trusteeship of the State over mineral resources, and the principle of Intergenerational Equity. Public Trusteeship requires that the State maximizes what it receives when it sells off its assets, such as mineral resources. Under the Constitution, sub-soil minerals are the property of the States (not the Centre, the land owner or the mine leaseholder). Therefore, the State has the responsibility of maximizing the proceeds from sale of its mineral assets.

The effectiveness of the Government can be measured by the “Capture Rate”. This is a division of (x) the inflows to the state from the extraction of the mineral resources, by (y) the value of the mineral resources in the ground. The Capture Rate has been calculated by the World Bank for a number of countries around the world. Best practice is to capture over 90% of the value of the mineral resources through appropriate legal structures.

We analyzed the last 8 years of mining in Goa, using Sesa Goa’s annual reports, and statistics from GMOEA (Goa Mineral Ore Exporters Association) and official figures. Our calculations showed that for the eight year period 2004-05 till 2011-12, the state of Goa has captured less than 5% of the value of its iron ore ! 282 million tons of iron ore assets were exported. This reduced the collective wealth of the state by Rs. 53,833 crores or Rs. 3.69 lakhs for each man, woman or child. In return for the huge decline in common wealth, the state received only Rs. 2,387 crores as royalty. Total government receipts for that period from all sources were only Rs. 27,402 crores. Clearly, the existing mining system fails to meet the Public Trusteeship principle.

This is a highly regressive hidden poll tax on the people of Goa. Lakhs of rupees were lost, even from the poorest persons, without their knowledge, let alone consent. This activity is also contrary to Articles 38 & 39 of the Constitution. Something needs to change.

We extended the analysis to the remaining 1.3 bn tons of iron ore reserves. We used two scenarios – (a) Capture Rate as historically achieved, and (b) Capture Rate of 90%. Under the first scenario, the total amount captured by the state of Goa would be Rs. 11,004 crores. Under the 90% Capture Rate scenario, the total amount captured would be Rs. 223,322 crores. This amount works out to Rs. 15.32 lakhs per capita. Given that the Indian per capita income is around Rs. 0.75 lakhs, this works out to approximately 20 years of income for every person in the state! And this does not take into consideration ores other than iron, including bauxite, manganese, etc.

Intergenerational equity can be simply stated as the principle that future generations need to have equal access to resources as the present generation. “Hartwick’s rule” is that as mineral resources are depleted (i.e. extracted from the ground), investments in productive assets need to be made to at least the same extent. This ensures that future generations (our grandchildren and their grandchildren) have as much assets as the present generation. The Supreme Court has mandated the establishment of a Goa Iron Ore Permanent Fund based on a proposal by the Goa Foundation. However, it only requires 10% of the value of iron ore to be deposited in the Fund. This is not enough to keep our assets constant. All money from mining must be deposited in the Fund – that is the only way to meet Intergenerational Equity.

India implications

Our findings on the poor capture rate do not assume illegal mining – so the entire system is broken. Also, since our proposal is based on constitutional principles, it can potentially be extended to all non-renewable natural resources, all over India. If Permanent Funds were created for all the states, union territories and the center, the eventual sum will easily run into tens of lakhs or crores of rupees. Mind boggling numbers.

This has many implications. State finances. Center-State relations. India’s savings rate. Funding for infrastructure. The exchange rate. Currency reserves. Public financial accounting. Implementation will also require legislative changes and much else. We need a broad coalition of support for the basic idea. We will need a lot of intelligent people across a variety of fields to work out the details of how a new system can be designed and implemented.

What about Goa specifically ?

As you know, the Supreme Court has ruled that all iron ore leases in Goa have finally expired in 2007. This gives the State an once-in-a-lifetime opportunity to re-design its mining system. Based on its long experience with mining, the Goa Foundation has made a proposal for a new mining system to the Chief Minister. The proposal is designed to achieve multiple social objectives – create employment for mining machinery and trucks, safeguard the environment, create mining management expertise in the state, maximize the returns from the sale of our assets, significantly bolster on a long basis the public exchequer, provide a strong set of controls, and provide a sense of ownership and pride to Goans. Public participation in improving and detailing a new mining system along the lines of the proposal would be welcomed.

I am enclosing the Goa Foundation proposal to the Chief Minister, which explains our calculations and our proposal for Goa specifically. I am also enclosing our letter to the central minister for mines – this sets out our recommendations in the broader Indian context. Our calculations and much other material is available on the Goa Foundation website at goafoundation.org/gmpfand goafoundation.org/mining.

Thanks
Rahul – +91 90960 39878

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