Treating mineral sale proceeds as revenue or income hides the real transaction- the sale of inherited wealth
The principle that the economy must be “sustainable”- we cannot compromise the ability of future generations to meet their needs-is beyond questions. Climate change and high levels of consumption already threaten to rob future generations of a Planet that is liveable. The principle of integrational equity would make it imperative for us to ensure future generations inherit at least as much as we did.
If we are successful in abinding by intergenerational equity, our children will be at least as well off as we are. If we leave a bequest as well, they will be better off then us. To consume what we have inherited without a thought for generations to come will leave the whole world poorer; like an addict selling the family gold.
India’s National Mineral Policy 2019 States:” natural resources, including minerals, are a shared inheritance where the state is the trustee on behalf of the people to ensure that future generations receive the benefit of inheritance”. The primary objective of a trustee/manager is to maintain the Corpus of the trust, the shared Inheritance of natural resources.
The extension of oil, gas and minerals is effectively the sale of this inheritance with royalities and other product being the consideration paid in exchange for the mineral wealth extracted. Unfortunately, governments everywhere treat the mineral sales prceed as revenue or income, a crucial error which hides the real transaction-a sale of inherited wealth.
This results in governments selling minerals at prices significantly lower than what they are driven by lobbying, political donation and cooruption. For example, it is estimated from the annual reports of Vedanta that over 8 years (2004-2012), the State of Goa lost more than 95% of the value of its minerals- after extraction costs and a reasonable profit for the extractor. Any loss is effectively a hidden per-head tax which makes a few extractors and their cronies super rich. Inequality grows sharply. This is the economics of loot.
Worse still, the trifles received by the government are treated as “revenue” and happily spent, leaving neither the minerals nor their value for future generations to inherit. This is just not suitable.
There is growing empirical evidence of large losses in mining from around the world. There is also growing every evidence from the International Monetary Fund that many governments of resource-rich Nations, including the United Kingdom and Norway, face declining public sector net worth, i.e., their governments are becoming poorer. Both indicate unsuitable sustainable mining.
Losses in mineral value drive many of the other problems with mining. In effect, the people and future generations of Goa have sold mineral wealth worth rupees 100 for rupees 51 loss of rupees95. Naturally the extractors are keen to extract as quickly as possible and move on. Trees, tigers and tribals are labelled as anti-development or anti- National.
If rupees 5 is received for allowing mining, doubling mining would result in rupees 10. Politicians and voters perceive more mining equal more governments revenue equals good. Further, the since extraction is not recognised as the sale of inheritaged wealth, the true loss of rupees 95 is hidden. More mining would make a bad situation significantly worse.
It is important to understand that as long as the government Accounting standard advisory board does not correct this error in the standard for public sector accounting reporting for minerals wealth, politicians and voters will advocate increasing extraction. This will lead to every bit of mineral being extracted if there are no moral or legal safeguards against such wanton loot. It is essential that as a nation we change our paradigm to understand minerals as a “shared inheritance” not a source of windfall revenue”.
since minerals are a shared inheritance held in trust for the people and for future generations, our foremost duty is to maintain the value of our children’s inheritance by avoiding theft, loss, waste or con-sumption. Leaving the minerals undisturbed fulfills our duty.
Therefore, if we extract and sell our mineral wealth, the explicit objective must be to achieve zero loss in value; the state as trustee must capture the full economic rent (sale price minus cost of extraction, cost including responsible profit of for extractor). Any loss is a loss to all of us and our future generations, and makes some rich; that is presently unfair. India’s National Mineral Policy 2019 say: “state Governments will endeavour to ensure that the full value of the extracted minerals is received by the state.”
Like Norway, the entire mineral sale proceed must be saved in a Future Generations Fund. The Future Generation Fund could be passively invested through the national pension scheme Framework.
Setting a global judicial president, in 2014 the supreme court order the creation of Goa Iron ore Permanent fund, which already has a Corpus of around rupees 500 Crore- Goa Foundation vs UOI & ORS., WP(CIVIL) 435 of 2012, judgement on April 21, 2014 The real income of a fund of this nature may be distributed only as a citizens’ divided, equally to all as owners. Future generations would benefit from the dividend in their turn.
For the Indian economic this is sustainable- capital has been maintained; the savings rate would rise, making and available more long-term domestic capital; it diversifies risk while likely improving returns- it is nearly improssible to outperform the market rate of return; the dividend is in effect a Universal Basic Income; lower inequality lead to higher economic performance, and as budgets no longer have easy meaning Money, public investment and tax administration will become more effective and efficient. This is a six-fold economic boost.
These principles of fair mining are fully constitutional, promoting justice, Liberty, equality, and fraternity. They are moral ethical, fair, right and sustainable. The reduction in losses would limit Corruption, crony capitalism and growing inequality. They fulfill our duties to our future generations. Let us be the generation that changed the course of history for the better, not the one that consumed the planet.