Determining the Competitiveness of Mining Regime: Role of Royalty
Publication dateFeb, 2013
DetailsReport submitted to the VEDANTA, STERLITE (INDUSTRIES) LTD
The impact of fiscal policy at the firm level is a rare area of research. This study examined the significance of fiscal policy –especially the royalty regime – in determining the competitiveness of the mining sector. The study is confined to the mining regime of non-ferrous non-atomic minerals, focusing on zinc and lead (Zn-Pb) mine firms. It is often emphasized that the only crucial factor which affect the competitiveness of the firm are the quality of mineral endowments and the firm level performance variables. The firm level variables include the cost of production and the financing modes of the firm, among many other factors. However, in recent years this conservative view has come increasingly under confrontation by the executives in the extractive industries and the economists, emphasizing the importance of the role of government policies – taxation regime, royalty regime and regulations—in enhancing and undermining the competitiveness. Against the backdrop of the Planning Commissions’ High-level Committee Report on National Mineral Policy (referred as Hoda Committee), MMDR 2011 and the 2011 Study Group on Royalty by Government of India, this study analyzed the mining royalty mechanism of Zn-Pb sector. The study incorporates the plausible conceptual and methodological revisions required for ad valorem rates of Zn-Pb linked to London Metal Prices and also examined the alternative mining royalty ad valorem regimes, including Net Smelter Returns (NSR) royalty.