More than 50 years ago, J.R.D. Tata was told that profit was a dirty word. That was the era of Indian protectionism: Businesses could not so much as breathe before the government invoked some law against them. Much has changed since, but the attitudes behind such utterances remain entrenched.
So it is hardly surprising that Union minister of mines B.K. Handique has called for a “windfall tax” as a way to tackle illegal iron ore exports. Handique told The Indian Express that “such taxation should address the concerns of soaring iron ore prices and at the same time, disincentivize profiteering. We are open to suggestions that will help the government collect a fair portion of the windfall profits earned by miners.”
The minister is innocent of any understanding of the law of supply and demand. If iron ore prices are going up and illegal ore supply is also going up, that is due to demand outpacing supply. If exporters are making a killing, that is because their output is in demand. If there are illegalities in the mining and export of iron ore, then the solution is tighter regulation. The minister does not want to do that messy job and has instead proposed what he thinks is a neat solution.
It is a solution designed to kill ore exports, and production in general, for the minister is trying to implement socialist economics 2.0.
The other, unsaid, issue is that of iron ore exports and their link to politics. It requires no research to know that most big exporters of iron ore have a big foot in politics. That makes any attempts to regulate their behaviour (often very bad) a difficult option. Handique’s solution thus smacks of political defeatism and is certainly poor economics.
The problem, as exemplified by the writ of the Reddy brothers in Karnataka, requires a bipartisan approach. The Congress on its own cannot successfully regulate unruly iron ore exporters. It needs to take the Bharatiya Janata Party on board. But that seems unlikely as that party is bound to see such an effort directed exclusively against the Reddys of Bellary. The minister’s solution is explicable when seen from this perspective. But it makes for terrible medicine.
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