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As many as three international standard-setting bodies including the International Monetary Fund (IMF) are working on ensuring government accounting for mineral wealth, said the Goa Foundation (GF) on December 14, 2021.
Since 2016, the GF and another global organisation The Future We Need, have advocated for accounting of natural resources like oil, gas and other mineral wealth controlled and disposed of by the government through miners. The organisations pointed out that mineral sale proceeds like royalty are incorrectly treated as revenue and spent as part of the budget. However, much of the wealth is sold for less than its actual worth. Further, activists raised concerns that the extraction will cause depletion of the mineral wealth, preventing future generations from using them.
To fix this problem, the organisations wrote to the IMF, the UN Statistics, the International Public Sector Accounting Standards Board (IPSASB) as well as India’s Government Accounting Standards Advisory Board (GASAB) and various officers in concerned ministries.
Finally, in 2021 the IMF deputed experts on Government Finance Statistics to join the Wellbeing and Sustainability Task Force to update the Government Finance Statistics Manual 2014 (GFSM). Accounting for economic ownership and depletion of natural resources was listed on priority. Similarly, the Advisory Expert Group (AEG) to the Inter-Secretariat Working Group on National Accounts (ISWGNA) on the UN System of National Accounts resolved to look at the issue. Whereas the IPSASB started work on this front as early as 2019. According to the GF, a consultation paper will be issued after their March 2022 meeting.
Reacting to the latest news, GF Director Claude Alvares said, “The time spent in international advocacy has produced results which, once they become part of the routine accounting standards run by global institutions, will lead to a wholly different, sustainable, conservationist approach to disposal of mineral wealth and assets.”
Alvares pointed out that in principle minerals are owned by the people but are badly managed by administrations, leading to serious losses, inequity, and senseless depletion of resources. In all this, the owners – citizens – get almost nothing. Instead, he argued that the primitive extraction methods cause further environmental degradation and “ill-fare” rather than welfare.
“The result is social unrest across the planet in all mining areas. Such an industrial model of extraction violates Article 39 of the Constitution of India,” said Alvares.
Similarly, The Future We Need member Rahul Basu said, “We are thrilled that this issue is now on the agenda of all three important standards setters, IMF, IPSASB and UN Statistics. This is a necessary and most difficult first step.”
He conceded that the change in international standards is a long process and may not result in all desired goals. Further, getting the changes adopted and implemented is still harder but “the ball is rolling and that is a huge win” he said.
Lack of accounting = poor incentives
As per India’s National Mineral Policy 2019, “Natural resources, including minerals, are a shared inheritance where the state is the trustee on behalf of the people to ensure that future generations receive the benefit of inheritance.”
Yet as mentioned before, this benefit never reaches the people, because governments everywhere treat the mineral sale proceeds as revenue or income, overshadowing the real transaction — a sale of inherited wealth or assets. The organisations said that this allows the administration to sell the resource at significantly lower prices than their actual worth.
As an example, the GF pointed to the curious case of Vedanta. Based on annual reports of Vedanta, it estimated that Goa lost more than 95 percent of the value of its minerals between 2004 and 2012. This meant that mineral wealth worth Rs. 100 was sold for Rs. 5. Even this amount is then spent by the government as “revenue”.
“This plunder of public wealth is effectively a hidden per-head tax which made a few extractors and their cronies super-rich. Naturally, extractors are keen to extract as quickly as possible and move on. Trees, tigers, tribals, environmental activists are labelled as anti-development or anti-national,” said the GF in a joint press release.
Activists argued that if the government accounting was conducted in a proper manner, this gross miscalculation can be stopped although more questions regarding sustainable development will arise.
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