India cabinet approves bill to share mining profit

India's cabinet agreed on a draft law on Friday that would force mining firms to share profits with impoverished communities in resource-rich areas, many of which are beset by Maoist violence.

Under the proposed law, coal miners will have to share 26

percent of their profits with the local communities. India is the world's third-biggest producer of electricity from fossil fuel.

Miners of other minerals will have to pay communities an amount equivalent to royalties given to the state government.

"The Mines and Mineral Development and Regulation Bill has been approved by the cabinet and it will bring direct benefit to all project-affected people," Mines Minister Dinsha Patel told reporters in New Delhi.

"Once the bill becomes a law, the miners will have to adhere to the new profit-sharing formula."

The legislation is intended to attract greater backing for mining from area residents who presently obtain little benefit from such activities.

Their exclusion has made many mineral-rich but poverty-stricken areas fertile recruiting ground for India's outlawed Maoist guerrillas.

"This money will be used for development projects, building schools and improving health and sanitation conditions in the districts where the mining project is situated," Patel said.

The announcement of the new bill triggered a sharp decline in metal and mining stocks at the Bombay Stock Exchange.

The world's largest coal mining firm state-run, Coal India, slid 5.15 percent to 333.75 rupees while Sterlite Industries, the local arm of global resources giant Vedanta group, fell 4.05 percent to 113.85 rupees.

India's largest private aluminium producer Hindalco lost 1.8 percent to 131.3.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said the bill will impose too heavy a financial burden on miners, already one of the most highly taxed sectors in the world.

It will "make mining unattractive for organized investors including foreign investors," said FICCI Secretary General Rajiv Kumar, adding the act would increase the tax rate on coal 61 percent and iron ore to 55 percent.

Mines Minister Patel also said that stringent rules would be imposed to prevent illegal mining.

"We want to attract more investors and bring an end to illegal mining," he said.

Earlier this month, Indian police arrested a senior minister and a mining baron in the southern state of Karnataka on suspicion of bribery and illegal iron-ore mining.

The scandal is thought to have cost the public exchequer 160 billion rupees ($3.6 billion) from 2006 to 2010.

However, social activists said the legislation failed to protect the rights of tribals and forest dwellers, many of whom live in resource-rich areas.

Bratindi Jena, a veteran activist of Sachetan Nagrik Manch, a national group working to uphold tribal rights, said the government was "clearly very desperate to acquire all the natural resources".

"Tribals own the land and the natural resources so where is the question of sharing profits with the owners? The government cannot fool or exploit the tribals. This bill is pro-miner, anti-tribal."

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