Mining profits for masses

Mining profits for masses

The use of public resources by private (even public) enterprise is a subject that inflames passions, wins (or loses) elections, and generally causes rational men (and women) to behave in irrational ways. India finds itself at a juncture where hard decisions on this issue need to be taken. One suggestion has been to create a mechanism which will allow the public that currently owns a resource or asset to benefit from its commercial exploitation. This isn’t a new idea. It has already been put forth as an alternative model of land acquisition. Now, the government is said to be considering suggesting that the same approach be followed in the case of mines, according to a report in The Economic Times on Monday.

India needs to have very clear and transparent rules on the utilization of public resources for private or, for that matter, public enterprise. It also needs to have equally transparent policies on compensation for people who have had to move because of an industrial project, or who can no longer earn their livelihood because of it. Making such people shareholders in the enterprise in question is, at least on paper, a good idea, as is giving them a share of the profit.

This newspaper is all for such models, but only as long as they follow the risk-return philosophy that forms the basis of all free market economic transactions. Companies that invest huge amounts of capital in building a project do so in the belief that they will turn a profit on the investment. This newspaper isn’t sure this is the kind of model the government is considering for land and mines. And if it is, this newspaper isn’t sure it is fair to expose land-owners and people displaced by projects to this kind of risk.

A fairer model may be to adopt a method of valuing an asset or resource that factors in at least some of the upside as seen by the company that wishes to use it. At one level, this makes the acquisition or the transfer of the asset that much cleaner. At another, it is an attractive proposition to asset and resource owners who currently face a significant amount of risk—in the case of land owners, for instance, this risk takes the form of the next crop failing. A one-time compensation that factors in the upside offsets this risk and, by doing so, may even provide an incentive for owners to give up resources and assets for commercial exploitation.

Unfortunately, given India’s political climate, even a fair economic model for land or resource acquisition can meet with irrational political opposition.

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