Profit-sharing debate moves to political realm

Profit-sharing debate moves to political realm

The debate over the new mining Bill’s profit-sharing proposal has moved into the political realm, though key parties have yet to decide their stand on the contentious legislation that could force companies to share 26% of their profit with displaced locals.

Also See | How Will The 26% Profit-Sharing Plan In The New Mining Bill Work (PDF)

The Mines and Minerals (Development and Regulation) Bill seeks to boost mineral output by giving speedy clearances to miners, and at the same time develop backward areas and curb Maoist insurgency.

Mines ministry officials are awaiting a final nod from the cabinet after which the legislation will be introduced in Parliament.

Even though the profit-sharing clause has drawn criticism from industry since last year, political views have only just started taking shape.

“We have supported the Bill, including all its proposals," said D.P. Tripathi, general secretary of the Nationalist Congress Party. “It is a step forward as it includes all stakeholders. Twenty-six per cent profit sharing is not that high."

Trade bodies have said such a big disbursement of funds could be mishandled, besides shrinking the pool of workers in remote mining areas as they would choose not to work if they get cash handouts.

Government officials who have drafted the Bill say the payout is large, but it could lead to less resistance from local people and new mines could speedily be set up.

Planning Commission deputy chairman Montek Singh Ahluwalia was reported to have said last week that profit-sharing could deter fresh investments in mining and push firms to depend on foreign markets to source minerals.

The debate over mineral productivity assumes importance as India moves ahead with 8-9% economic growth that needs vast amounts of metals, power and cement to meet infrastructure development and consumer demand.

Output of minerals such as iron ore and coal is growing, but not fast enough as setting up of new mines is bogged down with slow regulatory clearances and social opposition.

For political parties, the ramifications are high and key players are still seeing if they would want to run the risk of alienating investors.

“I have not examined it," Ravi Shankar Prasad, spokesperson of the Bharatiya Janata Party and member of Parliament, told Mint, when asked if his party favoured the Bill with its profit-sharing clause.

“Let me see it first," Brinda Karat, member of the Communist Party of India (Marxist), told Mint, in response to the same question.

Communist Party of India’s D. Raja couldn’t be contacted, while the Bahujan Samaj Party’s Brajesh Pathak did not return calls.

A political analyst, who did not want to be named, said politicians may, by and large, agree with the profit-sharing plan as it favours common people.

Equity market analysts said the Bill would be negative for the benchmark Sensex index as metal firms such as Hindalco Industries Ltd, Jindal Steel and Power Ltd, Sterlite Industries (India) Ltd and Tata Steel Ltd are components of it.

But in the long run, it would get factored in owing to good demand for metals in India and overseas, and metal and mining company stocks would continue to look attractive.

Pure mining companies such as Vedanta Resources Plc’s unit Sesa Goa Ltd and state-run Coal India Ltd and NMDC Ltd could see a direct hit on their net profit. But metal companies may not see their net profit eroding to the same extent as metal prices tend to be high and they could offset losses.

Graphic by Ahmed Raza Khan/Mint