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The end of a pernicious link

The end of a pernicious link

In the welter of scandals engulfing various governments in India, the Union government has taken two small, but positive, steps that hold the promise of cleansing the country’s politics to an extent. All will benefit, including the leading opposition party.

Last week, the railways effected a Rs100 per tonne increase in freight charges for iron ore. This increase is specific for iron ore meant for export and not for domestic use. In January, a Rs500 raise had been imposed. Similarly, in his budget speech, finance minister increased export duty on the stuff to 20% from 15%. He exempted iron ore pellets to “encourage the value addition process for fines".

Clearly, the step will hit raw material exporters more and exporters of processed material much less. State-owned NMDC Ltd, a major ore exporter later said the industry would not be hit hard. The chairman of the company, Rana Som, said that even after paying all duties, royalty and freight charges, exporters would still be left with a margin of $40-60 per tonne.

If anything, Mukherjee should have tightened the screw harder: while this would have hit the industry, it still would have survived, and private miners—now a bane of politics in the country—would have been fixed.

Ordinarily, mining of natural resources is the physical analogue of investment banking: dull, unimaginative and solidly profitable. But like many investment bankers of recent vintage, miners—especially iron ore miners—have acquired a taste for adventure. They can now be found in the ranks of ministers and politicians. Their financial muscle is formidable and in a political system that requires heavy doses of money—from elections to horse trading—this is one problem too many.

While the Bharatiya Janata Party may decry Mukherjee’s step as targeting its supporters—the Reddy brothers of Karantaka’s wild west, Bellary— it should pause and think about the consequences of “ore money" in politics. As a party that has been at the forefront of criticizing the government for corruption, it needs to look inward and ponder over the insidious nature of funding by ore magnates. Much of this wealth has been gained by questionable means. A politics funded by such gains poses danger to democracy—now and in the future —irrespective of which party holds the reins of power in New Delhi.

While India is not a sub-Saharan country afflicted with a resource curse, the danger in such situations is its unpredictability. Social scientists are still debating how to predict where and how the resource curse strikes. India should not become a data point in that sad story.

Is the raising of export duty on iron ore a positive step? Tell us at views@livemint.com

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