NEWS The consumption of what we have inherited without a thought for generations to come will leave the whole world poorer; like an addict selling the family gold. Thus, the principle of Intergenerational Equity makes it imperative for us to ensure future generations inherit at least as much as we did.
BACKGROUND Climate change and high levels of consumption have already threaten to rob future generations of a planet that is liveable. Further treating mineral sale proceeds as revenue rather than inherited wealth will compromise the ability of future generations to meet their needs.
WHY IS IT UNSUSTAINABLE?
- India’s National Mineral Policy 2019 states: “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.” The primary objective of a trustee/ manager is to maintain the corpus of the trust, the shared inheritance of natural resources.
- The extraction of oil, gas and minerals is effectively the sale of this inheritance, but the governments everywhere treat the mineral sale proceeds as revenue.
- This results in governments selling minerals at prices significantly lower than what they are worth, driven by lobbying, political donations and corruption.
- For e.g. according to the annual reports of Vedanta, it is estimated that over eight years (2004-2012), the State of Goa lost more than 95% of the value of its minerals, after extraction costs and a reasonable profit for the extractor.
- This makes a few extractors and their cronies super rich, increasing inequality, while the sales by the government are treated as “revenue” and happily spent, leaving neither the minerals nor their value for future generations to inherit. This is just not sustainable.
LOSSES, ERROR IN ACCOUNTING
- There is growing empirical evidence of large losses in mining from around the world, for e.g. there is evidence from the International Monetary Fund that many governments of resource rich nations, including the United Kingdom and Norway, face declining public sector net worth and their governments are becoming poorer. This indicates unsustainable mining.
- Besides this, losses in mineral value drive many of the other problems with mining. Eg: Trees, tigers and tribals are labelled as anti development or anti national.
- Politicians and voters perceive more mining equals more government revenue equals good.
- Since extraction is not recognised as the sale of inherited wealth, the true loss is hidden. More mining would make a bad situation significantly worse.
WHAT NEEDS TO BE DONE?
- As long as the Government Accounting Standards Advisory Board does not correct this error in the standards for public sector accounting and reporting for mineral wealth, politicians and voters will advocate increasing extraction.
- Hence, it is essential to change our way of understanding minerals as a “shared inheritance”, not a source of “windfall revenue”.
HOW TO MANAGE IT?
- Since minerals are a shared inheritance held in trust for the people and future generations, our foremost duty is to maintain the value of our children’s inheritance by avoiding theft, loss, waste or consumption.
- Leaving the minerals undisturbed fulfils our duty. Therefore, if we extract and sell our mineral wealth, the explicit objective must be to achieve zero loss in value.
- The state as trustee must capture the full economic rent (sale price minus cost of extraction, cost including reasonable profit for extractor).
- India’s National Mineral Policy 2019 says: “State Governments will endeavour to ensure that the full value of the extracted minerals is received by the State.”
- Like in Norway, the entire mineral sale proceeds should be saved in a Future Generations Fund. The Future Generations Fund could be passively invested through the National Pension Scheme framework.
- Setting a global judicial precedent, in 2014 the Supreme Court ordered the creation of a Goa Iron Ore Permanent Fund. The real income of a fund of this nature may be distributed only as a citizens’ dividend, equally to all as owners.
- This way of fair mining is sustainable as — capital has been maintained; the savings rate would rise, making available more long term domestic capital; it diversifies risk while likely improving returns — it is nearly impossible to outperform the market rate of return; the dividend is in effect a Universal Basic Income; lower inequality leads to higher economic performance, and as budgets no longer have easy mining money, public investment, and tax administration will become more effective and efficient. This is a six-fold economic boost.
- These principles of fair mining are constitutional as they promote- justice, liberty, equality, and fraternity. They are moral, ethical, fair, right and sustainable.
- Thus, the reduction in losses would limit corruption, crony capitalism and growing inequality. Also they fulfil our duties to our future generations.
Let us be the generation that changes the course of history for the better, not the one that consumed the planet.