With the Narendra Modi government announcing that 100% foreign direct investment (FDI) will be allowed into the country’s coal mining sector, it is very likely that world’s biggest mining conglomerates will eagerly step in. India has an estimated 319 billion tonnes of cumulative coal reserves, mainly in Jharkhand, West Bengal, Chhattisgarh, Odisha and Madhya Pradesh, with more in Telangana, Andhra Pradesh, Maharashtra, and smaller deposits in several other states, including the North-East. 

At present, about 92% of the mining is done by the public sector behemoth Coal India Limited (CIL) and the smaller public sector undertaking, Singareni Collieries Company Limited (SCCL). In 2018-19, India produced about 730.54 million tonnes (MT), according to provisional figures of the coal ministry, of which 606.89 MT was produced by CIL and about 64.4 MT by SCCL. 

On the face of it, there appears to be no need for the government to invite foreign companies to exploit India’s coal deposits. The public sector undertakings are doing well, their production is growing, they have paid almost Rs.1.27 lakh crore as dividends and reserves to the government in the past decade, in addition to various taxes and royalties amounting to Rs.44,000 crore last year. They are also a source of huge employment, with some five lakh employees working in CIL itself, although just about 2.7 lakh of them are regular employees (the rest are on various types of contract or casual workers). In fact, CIL is counted amongst the world’s top 10 coal mining companies.

So, it seems strange that foreign capital – that means, foreign companies – are being invited to a invest in Indian coal mines. Why this is so has been written about earlier in Newsclick, but here, let’s take a look at who all are likely to join this party.

The Big Mining Companies

According to a recently published report of the global auditing company PricewaterhouseCoopers (PwC),  the revenue of the world’s top 40 mining companies was a staggering $683 billion in 2018 and was likely to increase to $686 billion in 2019. Their combined profit before tax was $93 billion in 2018 and was likely to increase to $109 billion in the current year. That’s a jump of nearly 13%! Their net profit (after taxes and all other deductions) was $66 billion in 2018, likely to increase to $76 billion in 2019 – an increase of a phenomenal 15%.

These mining conglomerates are part of the larger set of major transnational companies (TNCs) that are today dominating the world’s economy. As a Tufts University/UNCTAD study of 2015 showed, the top 2,000 TNCs held assets that were 229% of world GDP, while their net sales made up nearly half (48.8%) of world GDP (gross domestic product) . The mining companies – or more properly, the extractive industries’ companies – made up about 5.5% of these 2,000 top TNCs. The study revealed that profits of extractive TNCs rose from 9.3% in 1996 to 13.3% in 2015.

What about coal mining specifically? As the table below, drawn from Statista, shows, five of the top 10 coal mining giants in the world are Chinese and one is Indian – Coal India. The Modi government is unlikely to invite the Chinese to exploit Indian coal. So, the potential candidates are the top three, or number five.

Note that Coal India is already among the top 10, yet the balance is being shifted elsewhere – out of India, towards one of the British or Australian companies. 

How Do Mining TNCs Make Profit and Where Does It Go?

These giant companies are not coming to India to do charity work. They want to make profits — more and more. Various studies, summarised here, have shown that these companies ensure large profits by
 

• Intentionally establishing operations in countries where it is possible to exploit low-wage workers.
• Investing in locations where it is possible to take advantage of regressive tax codes.
• Ensuring business-friendly production-sharing agreements with local governments.

Nate Singham, writing in Common Dreams (from where the above is drawn) quotes empirical studies done by the Tricontinental Institute of Social Research (TISR) in Zambia to show that Konkola Copper Mines (KCM) corporation, a subsidiary of Vedanta, gives an average monthly wage of $172 to local mine workers whereas the statutory monthly minimum wage in Zambia is $176.4. TISR reviewed wage agreements to supplement their empirical surveys and found that the owner of Vedanta, Anil Agarwal, earned 584 times of what the temporary contract worker was earning in copper mines.

The PwC report quoted above shows that the top 40 mining companies spent, on an average, just 22% of the value generated by their mining business went to their employees while 25% went to shareholders. This shows that the mining operations of these TNCs are highly exploitative of labour. It is this key factor that will draw Big Coal to India because wages here are quite low, especially among contract workers.

The tax part is also important. The PwC report shows that the top 40 mining companies paid $27 billion as taxes of all kinds in 2018 over revenues of $683 billion. That’s an effective tax rate of just 3.95%! With these kind of tax rates, it is small wonder that the mining companies are raking in profits with both hands.

It might be argued that India will not have such low tax rates as prevalent in very poor and weak African countries. That is possible, but here we need to note the immense power these TNCs wield over the political rulers of the countries they operate in. Once they get their teeth into mining operations in a country – as Modi is inviting them to do in India – the full force of their deep pockets, their political clout with governments in the UK, the US or Australia, their connections with multilateral finance agencies, such as the International Monetary Fund and World Bank, and with financial institutions, like banks, will become increasingly evident in India too. They will ensure that by hook or by crook, their profit margins are not affected by anything, especially taxation. 

So, as New India gets ready to welcome these ruthless giants to start operating fully in the country’s natural resources sector, dark clouds are amassing for lakhs of workers who will see retrenchments, changes in service conditions and curtailment of benefits. More than that, the country will be sucked dry by these companies. Keeping this in mind, the five lakh coal workers who are going on a protest strike on September 24 against this disastrous decision, deserve a salute – they are not just fighting for themselves; they are fighting for the country’s sovereignty.

Courtesy: News Click
 

Joan Robinson, the well-known economist, had drawn attention to a fundamental difference between foreign direct investment (FDI) in the manufacturing sector and in a sector that extracted an exhaustible resource, such as a mineral product. This difference can be illustrated with an example.

Suppose in both sectors profits worth Rs 100 are earned and repatriated abroad each year by the foreign company; and suppose the life of a mine is 10 years. Then at the end of 10 years, during each of which Rs100 would have been repatriated abroad, there would still be the manufacturing unit left intact in the host country; but at the end of 10 years, each of which would witness profit repatriation worth Rs 100, there would be no more of the mineral resource left in the country.

This is not to say that FDI in manufacturing should always be welcomed; not at all. This is just to say that while there may be situations where it could be allowed in manufacturing (when, for instance, it is a net foreign exchange earner), there is never a situation where a country should choose to allow foreign direct investment into a sector producing a mineral resource.

This is also an argument for keeping the extraction of all exhaustible resources within the public sector. Precisely because these resources are exhaustible, not only is there a question of ensuring an optimum rate of extraction of such resources, but every ounce of such resources, or the money obtained against the sale of such resources, must be used for purposes which are considered socially desirable. This requires social control over these resources, a necessary condition for which is keeping them within the public sector.

This is an idea which had for quite some time informed India’s policy with regard to FDI into the coal sector. True, there had been relaxations in this policy with regard to captive coal production for power plants and for units producing iron and steel and cement, but such captive collieries could not sell coal in the open market. But this has now changed, with the Narendra Modi government announcing that henceforth, not just private investment but 100% FDI through the automatic route will be allowed in the coal sector, which means that the virtual monopoly of the public sector unit, Coal India Limited (CIL), which accounts for about 83% of the total coal production of the country, will end.

All kinds of specious arguments are being advanced to justify this move. There are first of all ludicrous arguments like “it will help us reach the goal of being a $5 trillion economy”: to set oneself a goal and then to set about achieving it by hook or by crook can hardly be adduced as a justification for the “hook or crook” measures.

Then there is the argument that it will increase “competitiveness” within the coal sector. How exactly the absence of “competitiveness” has impacted adversely on the people of the country is never explained by those who advance this argument. Coal India after all is a public sector company: it does not resort to any exorbitant pricing because of its monopoly position; so, what does increasing “competitiveness” mean?

A third argument linked to this is that it would bring about greater “efficiency”. No index of “efficiency”, in terms, for instance, of any physical indicators such as inputs per unit of coal output, is provided on the basis of which this claim can be judged. Only some vague reference is made to the cost of production per unit of coal; but a lower cost of production per unit of coal is not indicative of greater efficiency. In fact, in the coal sector, where wage costs are a major part of the total unit cost, any observed lower cost in private production is on account of two main factors: lower wages, sometimes estimated to be as low as a third of the wages paid by CIL for similar work, and less concern for miners’ safety.

In fact, CIL has a safety record, which no doubt can and must be improved, but which is far better than what one observes in other countries which have gone into private coal mining, including even China. In fact, the average fatality rate per million tonnes of coal production is much lower in India than in China and Indonesia, two other large producers which allow private mining. Achieving “cost reduction” at the expense of human lives is hardly something we should be aiming at.

This basically brings us to the two most cited arguments. One is that FDI will bring in better technology into India’s coal mining sector. Even if this argument is accepted, we have to ask why technological upgradation of coal production by CIL itself cannot be effected by simply acquiring better technology, and why it becomes necessary to actually open up the sector to 100% FDI. In fact, there is no evidence of the government ever having made serious efforts to acquire technology through other means than by opening up to 100% FDI.

The second oft-repeated argument is that India has been importing coal of late, with the magnitude of imports going up over time because domestic production is insufficient to meet the domestic consumption requirements. Domestic production, therefore, has to be augmented rapidly, for which we need to involve private players, including foreign ones. The problem with this argument is that it never explains why CIL should not be able to increase production to the extent required. CIL, it is recognised performed very well in 2018-19 by adding 40 million tonnes of incremental output. Why it should not be asked to keep doing so in the next few years so that imports could be eliminated altogether, is never explained.

The suggestion is often made that CIL is “over-stretched”. What exactly this means is again not clear. It is a characteristic feature of large companies that they have the wherewithal to grow even larger whenever there is sufficient demand for their output; why this should not be the case for CIL, defies reason. And if perchance there is some constraint on CIL’s growth, then the government could easily set up another public sector company to increase the country’s coal producing capacity, instead of inviting foreign multinationals into our coal sector.

Much is made in this context of the fact that “precious foreign exchange” will be saved if we augment domestic production by inviting foreign multinationals. But there is never any recognition of the fact that such invitation will also lead to a substantial outgo of “precious foreign exchange” on account of profit repatriation by these multinationals.

Ironically, the same sources that argue that foreign multinationals should be invited because CIL is “over-stretched”, immediately add that foreign multinationals will not come, given the difficulties that currently exist on land acquisition, on the pricing of coal and on having to bid for coal blocks. The suggestion, therefore, is that all these restrictions must go in order to facilitate the entry of foreign multinationals. In other words, not only must foreign multinationals be allowed into coal production but they must be provided with a red carpet and the country’s entire policy regime must be made subservient to their demands; and all because of some unspecified “over-stretching” on the part of CIL.

The conclusion is inescapable that there is no pressing objective reason for this policy of opening up the coal sector to foreign multinationals; this policy is not dictated by any necessity but entirely because having foreign capital per se is considered desirable, even if in the process the price of coal goes up, and even if rampant primitive accumulation of capital at the expense of the tribal population of the country is carried out (which after all is the meaning of “easing” land acquisition).

It is ironical that a government which proclaims its “nationalism” so vociferously, and which locks up people for being “anti-national” at the slightest excuse, is so keen to hand over control over the nation’s resources to foreign multinationals by reversing all previous policy.

Courtesy: News Click