Corruption in Indian Mining - My article on Novamining blog

The corrupt practices in the mining sector haven’t got so much of an attention that they deserve. Off-late, however, the illegal mining and their impact have made news headlines. While we still hear of numbers in terms of losses to state revenues and depletion of natural resources, a well directed effort to curb the root cause of the menace is still not heard of. The reason quite clearly is the influential groups with vested interest that wouldn’t want any other script for their play.

Iron ore sector in Orissa has seen growth of illegal mining since the time iron ore prices hit the upward trend. Even with the global downturn, the cost of production was paltry when compared to international prices of ores. The national and state owned enterprises have earned huge profit margins in iron ore business. So, it is not very difficult to imagine the margins of the illegal miners, who for sure are not complying with safety norms, environmental standards or minimum wages rules. These huge margins are also likely to find their way into the pockets of those who are expected to keep laws complied with.

Illegal mining has been prevalent in coal sector as well. In the Indian context, coal mafia has been known to conduct illegal mining and are sometimes observed to control even the transportation system from the authorized coal mines. Although not strictly mining but illegal activities have been observed in the distribution of coal through the coal washery networks. All of these activities are certain to have so much money involved that none dares to enforce law.

As such there has been the problem with legislations, policy-making and drafting of rules and regulations in mining sector, which are archaic, skewed and inefficient, and lead to making opaque transactions economically attractive. These convoluted laws, for example the captive mining rules for coal, coupled with acute shortages, create demand for coal or ores such that cannot be met through legal channels. The rules of game are so labyrinthine that law-abiding companies find it challenging to get the required approvals and clearances, and operationalize their mines. So, for the unscrupulous entrepreneurs, illegal mining appears to be the way to go.

Well, the solution for this is simple, although the implementation is extremely difficult. The market needs to be aligned to fair and transparent transactions – in mining assets and in commodities that these mines produce. The rules of the game have to be simplified so that a law-abiding and honest firm does not get deterred and investments flow through the legal channels. With greater participation from the private sector, facilitated by level playing field, even the shortages can be addressed effectively. Also, the penal provisions for illegal mining and the judicial system that trigger these provisions need to be aligned with the modern era. Exemplary speed in dealing with illegal mining and equally exemplary penalties for these offences may help deter the tendencies to look for the unfair means.

But for all this to happen, we indeed need political will; supported by efficient and effective executive; and fair and swift judiciary. The big question then is will India ever get these.