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Making mining attractive PDF Print E-mail
Tuesday, 26 May 2015 02:35
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Keep the imposts down to the minimum

 

With a host of coal auctions out of the way, state governments will soon be allocating non-coal mines in a transparent auction-based method. The mines to be auctioned include iron-ore, bauxite, manganese and limestone. Eight iron-ore mines in Karnataka could be up for bidding; followed by another 107 mines spread across 13 states. While transparent auctions are good for business and will help the stalled iron-ore industry to revive after various courts had cancelled leases for a variety of reasons, both the state and central governments also need to be careful to keep the policy as liberal as possible. India’s royalty rates on most minerals are already much higher than those in countries like Australia and Brazil, and the new mining law allows for an equal amount to be paid by way of a district mineral fund (DMF); the DMF levy is a third of the royalty in the case of new mines. Keeping the duty too high will certainly keep out large global commercial miners who have the option of investing elsewhere—since the DMF specified is a ceiling, state governments looking to attract large miners may want to keep the DMF rates low. Indeed, it is to keep imposts low that, recently, the government reduced export duties on low-grade iron ore from 30% to 10%.

Indeed, it is not intuitively obvious why India needs to have export cesses or any other restrictions on exports. While the theoretical rationale is to create greater value addition within the country, it is easy to justify an iron-ore type tax on exports of steel as well—indeed, the government would do well to keep in mind that countries like Australia have built up a thriving mineral business on the basis of exports. In the case of Cairn India, as our lead story today points out, not allowing the company to export its superior quality crude is unduly penalising the company. Indeed, while it is taken for granted that oil/gas produced in the country cannot be exported—this reduces the country’s potential as an investment destination for oil/gas developers—it is absurd that developers are not given market prices for their products; indeed, not giving market prices for gas found in the deep seas has ensured exploration activities have slowed dramatically. If the government, due to its Make-in-India policy, for instance, puts high imposts on exports—or states via the DMF—this will prevent the healthy development of the country’s mining sector.

 
 

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