Reform mining

Warped policy is turning base-metal ore into pure gold in the stock market, distorting incentives, prices and value-addition in minerals and well beyond. National Mineral Development Corporation (NMDC), our largest iron ore producer and exporter, has an embarrassingly huge market cap, thanks to price arbitrage.

Its tiny floating stock is a factor for the bloated valuation, but the main reason is that NMDC gets premium global prices for iron ore while its costs in terms of mineral royalty, cess and other levies are rock bottom. These have not been revised in years, often decades!

Worse, the opacity in licensing and leasing norms for mineral blocks is perverse incentive for graft, delays and scant value-addition downstream. Where is the incentive, say, to make value-added, high-grade steels when iron ore is available literally dirt cheap from captive mines?

The Centre, reportedly, is planning to divest stake in NMDC. It makes perfect sense to unlock value, particularly when, as now, government finances are grossly over-extended. But in tandem, comprehensive reform in minerals and mining has to be fast-tracked. We need prompt revision of royalty rates, linking them to ore value, as is the standard global practice.

And ore prices must become market-determined. It���s absurd that extant royalty rates for ferrous ore can be as low as Rs 11 per tonne. We also need clear-cut rules to ring-fence the royalty payments accruing to state governments, for local-area development and to shore up social and physical infrastructure.

It is fortuitous that three states with high poverty ratios, Odisha, Jharkhand and Chhattisgarh, are also mineral-rich. They are also the most affected by Maoist violence and lack industry. What���s clearly lacking is visionary policy to step up productivity in minerals and metals, for truly inclusive growth.