Recent report of CAG on coal mining about estimated loss of Rs.10.67 lakh crore to exchequer of India has raised an important question as how to distribute nation’s natural resources. 

Every nation has got resources with it. These are natural resources like oil, coal, iron ore, diamonds and human resources (trained and untrained). These resources are used to create products and drive GDP. Countries failing to efficiently utilize its resources are poor. 

Nobel Laureate Joseph Stiglitz, tells “Most countries with large (production) of natural resources do more poorly than those without, which is an irony,” and he attributes this to “very big failures in the development and management of natural resources ”. “Quite often, countries with large amounts of natural resources suffer from exchange rate appreciation and the result is when they sell the natural resource, the value of currency goes up – they produce natural resources but no jobs. You can see this all over the world where you have rich countries and poor people. That’s why it’s so important to manage the natural resources from a macro-economic point of view,” he explains. Therefore, point is not to earn revenue from auction of natural resources of the country but utilizing them for creation of jobs. 

With this base, if we examine the allotment of coal blocks. Question is “to whom these resources should be given so that employment is generated and country prospers” and second question is that “resources are not squandered”. If we look at production of steel in the country, with consumption more than production, India imported 2.7 million ton of steel during 2011-12 against domestic production of 70 million ton. Input costs of steel production are labour, iron ore, coal and power. Except for power where shortages are experienced, other costs- labour, coal and iron ore are low in India due to abundant availability. Cost of production of steel in India is among lowest in world and India should be biggest exporter of commodity but India is still exporting iron ore and importing steel. Per capita consumption of steel in India is 55kg as compared to 405kg in china and 419kg in Japan. China is producing 700 million ton of steel with imported iron ore and coal.

There should be no argument that country should step up steel production to generate employment in India. This needs conductive environment and government help for industry. Iron ore and coal should be made available to steel industry rather than export of raw materials.

These minerals are national property and should be used as told by Nobel Laureate Joseph Stiglitz, “Emerging economies which fail to exploit the potential of the assets they have below the ground – such as oil and natural gas – are likely victims of the ‘curse’. If you can’t “re-create” these assets above the ground”, He says, “You’re poor, because you’re destroying your asset base. If you squander your assets, you’re jeopardising the future of your country.” If we look at mining in India, observations of Mr Joseph Stiglitz are very true. Residents of Mineral rich states of India are among poorest. These states are also affected by naxalism. Mining has affected livelihood of tribals and no major financial benefits have been passed to labourers working in mines apart from health problems. Auction of minerals for export should be strict no-no. 

Coal should be used to generate power and manufacture steel. Auction would mean high revenue to government but also high price of commodity. This price is to be paid by users of electricity in turn. In this way, it is another form of taxing the public. Another problem in taxing is that revenue collection and distribution of central grants involves huge costs to be borne by public of India.

Instead, a better way could be bidding for power plants with coal blocks given by government. Lowest Bids for sale of power should be accepted. Similarly, steel plants need to be supported to remain competitive. These plants can also be allotted coal and iron ore for in-house consumption on payment of fixed royalty. Creation of sustainable livelihoods in country especially for local tribals of mineral rich states should be the goal in extracting natural wealth of country from ground.