With the cabinet committee on economic affairs approving the revision of royalty rates on coal by 14%, the total revenue earned through royalty of all coal-producing states, except West Bengal, will rise by Rs711 crore.
This will be a 24% hike over the royalty earning of more than Rs3,000 crore at existing royalty rates.
However, this will lead to an increase in the price of power and intermediate products such as steel and cement. Still, the Confederation of Indian Industry welcomed the decision on the grounds that this will help in setting norms for revenue sharing.
A statement issued by the chamber said coal being one of the primary sources of power, it will definitely help the state governments in recovering their dues and in repaying outstandings for power from central public sector undertakings. “This step will, however, add burden on the industrial and domestic consumers for electricity,” the confederation noted.
Royalty rates have not been revised since 2002 and the coal-producing states had been asking for a revision for some time. Their contention was while the coal companies have been raising prices, they were not sharing the benefits since royalty rates were fixed on tonnage basis and hence remained unchanged.
They also felt there was a case for revision as the value of the rupee had depreciated.
Briefing reporters after the cabinet committee meeting, finance minister P. Chidambaram said: “Any revision in cost will reflect in prices (at the consumer level).” Asked about concerns over the impact of royalty revision on inflation, the finance minister said it was “the right of the states” to seek revision in the rates and an assurance was also given to them in Parliament.
According to the draft cabinet note, the impact of this hike in royalty will push up prices of steel by Rs64 per tonne, of power by 1.5 paise per kWh and of cement by Rs5.46 per tonne.
“This will impact sponge iron manufacturers by at least Rs130-140 a tonne and increase prices of finished steel,” said N.K. Mohanty, vice-chairman of Sponge Iron Manufacturers Association, which has some 55 members.
Sponge iron is used as a feedstock in steel-making, accounting for 50% of steel manufacturing in India
The government decided to revise royalty after the principles of determining rates were considered by the Economic Advisory Council to the Prime Minister and a study group of the ministry of coal.
The government, going by the precedent, believes the hike in royalty rates would encourage states to produce more coal.
According to coal ministry figures, coal production, immediately after the hike in royalty, increased from 291 million tonnes (mt) in 2002-03 to 343mt in 2005-06—resulting in royalty revenues growing by 25% from Rs2,544 crore to Rs3,181 crore during the same period. This year the government is targeting coal production at 385mt.
With the cabinet committee approving the revision, an amendment to the second schedule of the Minerals (Development & Regulation) Act will now be moved in Parliament. West Bengal has been excluded because it follows a different pattern of cess on land where the coal is mined.
PTI contributed to this story.