National Mineral Policy 2006 - Department of Mines

Jharkhand, Rs 456 crore instead of Rs 72 crore in Orissa, and Rs 418 crore instead of Rs79.75 crore in Karnataka.ROYALTY RATES IN OTHER COUNTRIES AND IMPLICATIONS FOR INDIA6.12 The benefits that could be derived from conversion of specific rates to ad valoremhave been demonstrated above. The desire of the state governments to see a quantum jump inrevenue from royalties raises the question of whether an across-the-board increase in the ratesof royalty can be considered. Here it must be borne in mind that the primary aim of thegovernment in granting mineral concessions is to stimulate sustainable utilisation of thecountry’s mineral resources to enable wealth creation and employment generation. While atoo high level of royalty may impact adversely on investment and trade and limit thecommercial exploitation of minerals, a too low level may result in the revenue yieldingpotential not being tapped fully. The challenge is to set the royalty rates at the optimum level,which is not too high for the investor but which maximises returns at the same time. Forminerals that are exported either as ore or as processed products it is manifest that our royaltyrates have to be such that the product does not become uncompetitive in the internationalmarket. Even for products that are not exported it must be borne in mind that India is rapidlyintegrating itself into the world economy and trade barriers have been lowered considerablyand would be lowered further in the future. Indian manufacturers are living in a rapidlyglobalising world and have to compete with their foreign counterparts, not only in theexternal markets but in the domestic markets as well. In such a situation, it would not be wiseto set a royalty rate that is out of tune with the rates in other countries. As it is, the transportinfrastructure in India is not of world standard and adds to the cost of exports from thecountry. Furthermore, India has to compete with other mineral producing countries inattracting FDI in mining. One of the factors that mining companies take into account for theirinvestment decisions is certainly the fiscal regime, in particular the rate of royalty. The Indianrates have to be competitive from this perspective as well. Mineral production is theculmination of a complex, risk-taking sequence of expenditure incurred to discover anddevelop a mine. Before discovery of the mineral deposit, the company incurs cost onexploration and prospecting operations. Once discovered and developed, the company incursextraction or operating costs and needs to provide funds also for mine closure andenvironmental restoration of the site. Sales of extracted minerals over the mine’s lifetime125