Mining everywhere is a messy business, but it is undeniable that in India the business is much more messy than elsewhere. The political interference, rampant illegality and enormous, uneconomic profits to be made in the sector are born of confused, opaque and outdated regulation. It is welcome, therefore, that the mines ministry has been working to update mining law — specifically, the Mines and Minerals (Development and Regulation) Act of 1957, universally and cheerlessly known as MMDR. Now comes news, however, that the law ministry, which is supposed to vet new legislation, has suggested to the mines ministry that "losing mineral wealth forever" should be a concern. An increased emphasis on "conservation" means, among other things, that we should look very carefully at what they call "large-scale exports". This would, they claim, also cut down on illegal mining.
This is a seriously wrong-headed approach. Leave aside for the moment the question of whether this represents a bit of over-reach by the law ministry, which is supposed to examine legislation for legal loopholes and possible challenges, not set out its possible deeper policy implications. There is another concern here: the knee-jerk use of trade barriers to satisfy various domestic constituencies that might be having a tough time. Last month textile exporters successfully managed to get the Centre to introduce restrictions on the export of raw cotton; this hit farmers hard, and set a terrible precedent. In this particular case the concern is about the state of India's iron and steel industry: squeezed by high commodity prices recently, steelmakers have been lobbying hard for those subsidies that are, in Delhi-speak, euphemistically called "relief". A few weeks ago, the steel ministry had written a letter to the finance ministry asking that export of iron ore be "de-incentivised". Steelmakers feel that they should at least get to control the supply of iron ore given that the price of coking coal, for example, spiked over the past year and there was very little they could do about it.
There is absolutely no payoff to introducing barriers to trade, whether price-related or quantitative, in response to industry's desire for control. Here's another reason to extend financial sector deepening: hedging through the judicious use of commodity futures should take the pressure off struggling companies. Nor can "conservation" be interpreted to mean restricting mining but, as the mines ministry has pointed out, increasing productivity and the value addition from related industries. Above all, the knee-jerk use of trade barriers to appease lobbies must end.
