September 21, 2010 Special to ‘Financial Chronicle’

by Praful Bidwai

Should mining companies, which belong to one of the most lucrative fast-growth sectors of the Indian economy, be made to share their wealth, assets or profits with the rural and tribal communities which they displace? There are three distinct answers. According to the Federation of Indian Mineral Industries (FIMI), the apex body of mining companies, the answer is an emphatic no. Industry associations like CII and FICCI also contend that the profit-sharing provision is “complex, difficult to implement, and will put a very high burden on mining companies”.

A tiny minority of companies accept the principle of compensating those whose livelihoods have been affected, but even they disagree with Union mines minister BK Handique’s proposed Mines and Minerals (Development and Regulation) Bill, 2010, which mandates that 26 percent of the mining companies’ profits be shared with the affected people.

According to the steel ministry, some concessions or exemptions should be given to state-owned companies like Steel Authority of India and National Mineral Development Corporation. They deserve special consideration because of the “historical role” they played in accepting “social obligations” in different, especially extremely backward, parts of India.

According to people’s movements and non-governmental organisations who speak for the communities and vulnerable groups affected or liable to be affected by mining, the answer is sharply different. They emphasise the high human and social costs of displacement caused by “development” projects, which have uprooted 45 million people since Independence without resettling, leave alone rehabilitating, a large majority of them. Mining, like dams, industries and highways, is responsible for a large chunk of this damage.

NGO activists and analysts say that 26 percent of the profit is too little, given the real costs of displacement to the community and the environmental costs to society. Some others argue that what is needed is not a share in profits, but a surcharge or cess on the royalty paid for minerals.

Even a share of equity is not good enough—because the affected people have not chosen to take risk to earn a profit. And such is the power imbalance between them and the corporations that they cannot possibly have an active role in deciding how equity is to be deployed; they will be passive, gullible shareholders. That’s not an equitable solution.

Relying on profit-sharing may be even trickier. As a Planning Commission group argues while commenting on the Bill, “the mining company might declare less profits/no profits or losses. Moreover, mining is a location-specific activity and some persons might get more compensation than others.” Besides, “equity-sharing is a kind of paper transfer and may not give regular income to the affected people. Further, it appears to violate the principle of good governance.” So, it recommended a 26 percent share of royalty accruals from mining. Since mining projects have a gestation period of 5 to 6 years, the government should charge a 5 percent cess on accruals till miners begin depositing a 26 percent royalty share.

This is surely a superior formula. But it needs to be improved in four ways. First, there has to be a clear identification of all the affected people. This must not be limited to those who have land titles or official tenancy rights. All those whose livelihoods will be disrupted, including artisans, landless labourers, service-providers (like blacksmiths and barbers), must be included through a proper prior survey.

Secondly, there must be a clear, reliable mechanism for collecting and distributing compensation. The royalty payable on the amount mined (which may vary from year to year) must be supplemented by an initial capital fund for resettlement and rehabilitation before the ground is broken. The distribution of compensation and its use must be periodically monitored, along with displacement impact, by an independent committee which includes all stakeholders within the government, community, company and civil society groups.

Thirdly, the royalty rates must be radically revised. Currently, they are extremely low (e.g. Rs 27 per tonne of iron ore, which fetches Rs 8,460 in China) and have become a legitimate source of resentment in numerous states. And finally, rehabilitation must include programmes of education, imparting of skills and retraining, besides full restitution of community life, and physical and psychological rehabilitation.

All this poses a big challenge to Indian industry. It has for decades enjoyed a free ride and never borne the social and environmental costs of its profit-making activities. Now, for a variety of reasons, some of them related to the Naxalite upsurge, itself rooted in problems caused by mining, Indian society has woken up to the need to impose some obligations on private business.

Business must fulfil these obligations in real, substantial, measurable ways—not with vague promises of corporate social responsibility. As the Bhopal case and its toxic aftermath shows, CSR means very little. It is time Indian business rose above the sordid social standards it has long taken for granted.