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It is welcome that a glaring anachronism from the days of the licence-permit raj is likely to be done away with, and soon. It was reported last week that the Centre plans to link iron ore royalty rates to market prices of the mineral. About time, too. There is a sound case for purposefully revising royalty rates for all minerals, so as to rightly account for scarcity value.

After all, reasonable royalty rates for ferrous ore would incentivise value-addition downstream and rev up output of high-grade steels, and more. It would shore up public finances in the mineral-rich states, particularly in Orissa, Jharkhand and Chhattisgarh, which also happen to be income-poor and with large poverty ratios.

The fact is that the extant royalty rates for ferrous ore are as low as Rs 11 per tonne, even for the high-value 'lumps.' For iron ore 'fines,' the rates drop to Rs 4/tonne! This is ridiculously low, given that iron ore prices — which have considerably declined of late — do quote at about $70/tonne. Yet for long years, the practice has been to keep royalty rates unrevised and at rock-bottom levels. Such distorted policy may have seemed all right in the days of autarky, repressed prices and rigorous controls. But steel prices were decontrolled way back in 1993. That is why the unrevised royalty rates are wholly unwarranted.

What's required are clear-cut rules to determine market prices of ore. A committee of secretaries has already recommended royalty at a 10% ad valorem rate. Further, what's needed are proper norms to earmark a substantial portion of the royalty payments for planned development of the mineral-rich regions. The fact remains that many of the districts hit by the ultra-left wing Maoist insurgency also happen to have large mineral deposits and significant tribal populations.

And there's a perception that it is 'outsiders' who benefit from the mineral resources. Which is why what's required is ring-fencing the plough-back of higher royalty proceeds for social and economic development. In tandem, what's called for is transparency in the investment regime for reconnaissance, prospecting and the grant of mining lease. Our huge deposits of ferrous and non-ferrous ores do call for a fresh approach.

2 Jul 2009, ET Bureau