An Economic Perspective on Coal Mining in Meghalaya

By Sumarbin Umdor

The ban on rat-hole coal mining by the National Green Tribunal (NGT) has affected considerable sections of the population of the state that are directly and indirectly dependent on this activity. As coal mining in the state is not regulated, there is no official data on number of persons engaged in this activity. In order to put a figure on the extent of employment provided by coal mining in the state, we have used available Census and National Sample Survey data. According to 2001 census data there were 4044 workers engaged in coal mining which represent less than one percent of total workers in the state. While the 2011 census data on industrial classification of workers has not been published as yet, NSS data for 2011-12 shows the percentage of main workers engaged in coal mining in Meghalaya at about 1.5 percent out of total of 10 lakh workers. If we take a liberal assumption that each worker represents a household whose primary source of income is from coal mining, then about 2.8 percent of households in Meghalaya are directly affected by this ban. Besides direct employment, coal mining also generates indirect or induced employment in wider economy which is an outcome of employment multiplier effect. A cursory review of some studies of the size of the employment multiplier for mines ranged from 1.5 to 3.5. As for every worker employed in mining sector an average of more than two jobs are created in the economy, the total number of households affected by the ban on coal mining in the state will be much higher than percentage of 2.8 extrapolated from NSS data.
Besides employment, contribution of coal mining to the state’s income is also substantial as about 7 to 8 percent of state’s GDP originates from mining and quarrying with coal being a major component of this sector. Mining sector also generates significant revenues being the second largest contributor to the state’s own tax and non-tax revenues. In 2012-13, revenue from this sector in the form of mineral concession fees, rents and royalties was to the tune of Rs. 357 crore which constituted about 27% of the state’s own revenue receipts. Share of royalty on coal also forms the main source of income for the three autonomous district councils (ADCs). For a state with weak revenue base, the loss of income due to the ban on coal mining will have a severe impact on the finances of state government and the ADCs.
The NGT has dubbed the method used to extract coal in the state through a practice known as rat-hole coal mining as an unscientific, unregulated and illegal activity causing serious ecological and environmental damage and putting the lives of workers at risks. It further commented that this practice has benefitted only the coal mine owners with no substantial gain to the society and the state government. Rat-hole mining in Meghalaya generates adverse impact in the form of contamination of water bodies by the acid mine drainage.  Roadside dumping and transportation of coal are other sources of air, water and soil pollution which imposes a cost in terms of its impact on the health and livelihood of citizens at large. These external costs of coal mining in the state have been discussed in many scientific studies. Other studies from around the world have also referred to external costs of coal mining in the form of global warming from greenhouse emissions, accidents, biodiversity impact, noise pollution, congestion and damage to roadways.
The state government’s view on the negative environmental and social consequences of coal mining is reflected in the Meghalaya State Development Report of 2008. According to the report, ‘unscientific mining has led to contamination of water bodies and rendering of large track of agricultural land infertile and unusable. It also led to immigration from Nepal and Bangladesh’. It further points that ‘benefit from natural wealth of the state accrue to select group of individuals and not to the public at large. Some mine owners in Jaintia hills have benefited from extensive coal mining on their lands but a large population is suffering from the adverse consequences of mining’ (pg 55-56).
When a harmful effect of an economic activity spills over to a third party (people not connected or/and benefitted by this activity), it is called as negative externality. Unlike elsewhere in the country, coal mining in Meghalaya is a private owned economic activity generating negative externalities for which the perpetrators -coal miners- are not being made to pay or compensate for these costs.  This results in coal being produced at an output level much higher than what would have been if the coal miners would have had to include both the private as well as social (external) costs in the cost of production. This phenomenon of over production beyond the socially desirable output is termed as market failure and it calls for government intervention.
What are the measures that the government can adopt to deal with such negative externalities arising from an economic activity? There are two public policies that are relevant here. These are the command and control policies and market based policies. Command and control policies also called direct regulation requires for the government to frame and enforce regulations that would dictate production to contain and minimize the environmental, health and other negative impact on the society. In this case, this could be in the form of quota or permit on coal production along with environmentally friendly regulations on mining method and transportation such as prohibiting the discharge of water from mines without appropriate treatment and also the open storage and transport of coal. It could also include banning coal mines from operating within certain radius of population centre. One example of such policies is the Surface Mining Control and Reclamation Act which was enacted in 1977 by the US Congress to regulate mining activity, rehabilitate abandoned mines, and protect society and the environment from the adverse effects of mining operations.
Market based policies use instruments such as taxes to correct the negative impact of an economic activity. Ideally, the revenue raised from such taxes should be equal to the harm generated by the activity. Such a tax on coal production in the state would put a price on the pollution caused by this activity and force the mine owners to take into account the social costs of mining in their cost of production. Taxes can also be used by the government to raise revenue to fund environmentally friendly projects and activities. Both the approaches have their limitations. The success of the former requires an effective monitoring and enforcement of regulations, while the challenge in the latter is in estimating the monetary value of externalities.
So what are the implications of the ban on coal mining in Meghalaya? Firstly, the ban will affect the revenue of the state government particularly the three ADCs. In the case of employment, the impact of the ban is not going to be substantial for the state as a whole although the employment impact on coal mining areas will be more severe. On the policy front, the state government needs to be proactive in framing appropriate legislation to regulate economic activities in the state. As apparent in present case, failure of the state government to do so is having an adverse impact on the economy and the livelihood of people. As a community, we have to stop hiding under the garb of Sixth Schedule and Age Old Tradition while addressing the serious environmental and health issues arising out of rat-hole coal mining. The ban of coal mining needs to be understood in the proper environmental and economic perspective and addressed through policies that will minimize the adverse effects of this activity on the environment and the society. In this regard, the recently notified Meghalaya Minerals and Mining Policy of 2012 is a beginning but lacks details and comprehensiveness which we find in similar mining legislations elsewhere in the world.

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