FE Editorial : Capturing Karnataka

Written by The Financial Express | Updated: Jun 30 2010, 02:56am hrs
The disappearance of half-a-million tonnes of illegally mined, confiscated iron ore from the Belekeri port of Karnataka is shocking because it is indicative of a state administration that has connived with narrow vested interestswho are now an important part of the states politicsto brazenly violate the rule of law. The states top anti-corruption official, Lok Ayukta, Justice N Santosh Hegde had prioritised an investigation into this missing ore. After being thwarted in his efforts to uncover the wrongdoing, the Lok Ayukta finally resigned. The evident degeneration of politics in a state like Karnatakawhich built its reputation on the strength of its infrastructure and IT industryinto a capture by powerful mining interests, particularly of the ruling BJP, does not bode well for the future of the state.

On the face of it, this looks like a peculiar variation of what economists call the Dutch Disease, a concept that purportedly explains the apparent relationship between a sudden inflow of funds from large-scale exploitation of mineral wealth and the degeneration of other sectors, especially manufacturing, due to unbalanced growth. The only difference in the Karnataka case is that the impact of the large incomes generated from the substantial expansion of iron ore mining to meet the burgeoning global demand seems to have affected the polity rather than the other sectors of the state economy. This has happened because the margins from iron ore mining are so high that it acts as an incentive to expand business by any means, legal or illegal. The current mining statutes in India are such that they allow governments almost complete discretion to allot precious mineral rights to the enterprises with the largest clout. There is no market mechanism like auctions that would encourage competition and ensure that at least a part of the bonanza flows to the government. Evidently, some segments of the mineral business in the state have apparently seen the gaps and exploited them by entering politics to further their business interests. The only way out is to overhaul the entire policy regime in the mineral sector and bring greater competition to the mineral markets by ushering in greater transparency in the granting of mineral rights.