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Web Exclusive | July 2013

Experts seek revamp of royalty policy

Experts argue that the mining industry in India is subject to adhoc and arbitrary royalty regime by the government.

They argue that faulty royalty regime is one of the issues plaguing the sector.

Industry observers feel that royalty rates of all metals were increased to figures much above the global standards.

Experts point out that rates in major mineral producing countries such as Australia, Chile and South Africa are between 2 to 5 per cent. In comparison, rates in India can go up to as much as 13 per cent. It is well known that high royalty has a negative impact on the competitiveness of mines.

It is alleged that there is huge inconsistencies in the royalty figures among similar metals. For example, in 2009, the royalty rate of copper and manganese was raised from 3 to 4.2 per cent. On the other hand, royalty on zinc rose from 6.6 to 8.4 per cent and lead from 5 per cent to a whopping 12.7 per cent.

In the case of iron ore, the increase was even more arbitrary and exorbitant. Royalty was fixed at an ad valorem rate of 10 per cent on all grades: lumps, fines and concentrates, which essentially meant a ten- to fifteen-fold increase in royalty. To this was added a punitive export duty of 30 per cent, which made the industry amongst the most taxed in India.

Experts find fault with the demands of some states to raise the royalty even though a very high level of royalty was already being collected.

For example, in Rajasthan, royalty has nearly doubled from Rs 660 crore in 2008-09 to Rs 1,182 crore in 2010-11, while in Goa, it has increased more than three times, from Rs 286 crore in 2009-10 to Rs 959 crore in 2010-11.

Over the past few years, all the major mining states witnessed a considerable rise in royalty income. In fact, in Jharkhand, Chhattisgarh, Odisha and Goa, mining contributes to around 8-9 per cent of GDP, experts point out.

The rate for zinc is double that of copper and manganese, both of which are in a similar metal category. Lead is charged at thrice the rate for copper and manganese.

In order to restructure the royalty regime, the central government set up a study group.

One of the terms of reference was “to give an additional conditional recommendation on what should be the royalty rate and the mechanism for computation of royalty rates after taking into account the liabilities on the lease holder as envisaged in the draft Mines and Minerals (Development and Regulation) Bill, 2011, in the event the Parliament approves the new draft Bill”.

Some industry observers feel that if the liabilities of the lease-holders are properly taken into account while making the recommendations, there would be a strong case for a downward revision of rates.

By revamping the royalty regime, the government must support the mining industry which provides employment to millions of people, saves precious foreign exchange, and makes an immense contribution to the exchequer, experts argue.

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