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The Goa Iron Ore Permanent Fund in India: A Bold Precedent
Tue, 05/10/2016 - 10:14
The Alaska Permanent Fund has been an inspiration to many of us because it provides a mechanism, the “stakeholder trust,” to ensure that everyone benefits from common assets, especially natural resources such as water, minerals, forests and the atmosphere.
In Alaska the Fund, operating as an independent, state-chartered trust, holds an equity stake in oil on state lands and therefore reaps a royalty on a portion of the oil extracted. This is deposited in a massive trust fund, worth more than $52 billion, which kicks off revenues in the form of “dividends” for every resident of the state, including children. The sums usually amount to $1,000 to $2,000 per year.
Peter Barnes in his 2006 book Capitalism 3.0 suggested a number of ways in which the permanent fund idea could be applied to other common assets that are now plundered for private gain, such as forests, the atmosphere, the copyright and patent systems, and the financial regulatory apparatus. The State of Vermont has entertained the idea of establishing permanent funds for some of its common assets, but the idea has not moved there. (See the 2008 report, "Valuing Common Assets for Public Finance in Vermont.”)
I was therefore thrilled to learn recently about a fascinating version of the permanent fund that the Supreme Court of India has mandated for the state of Goa. In the course of public-interest litigation, it was discovered that, over the course of an eight-year period, the Goan government had allowed private mining companies to cart away 95% of the value of minerals on public lands, or about US$8.5 billion. This sum is twice the total state revenues for those eight years, or about$5,800 (Rs.3.7 lakhs) for each man, woman and child in Goa. In addition, private mining companies had caused all sorts of environmental destruction.
Rahul Basu, an Indian activist who brought the Goa Iron Ore Permanent Fund to my attention, noted that “since minerals are a part of the commons, i.e., owned by all of us, this loss is effectivelya per-head tax. Everyone loses equally, and a few get richer. This is not trickle-down, it is gush-up. This is a highly regressive redistribution of wealth.” Basu also noted that government privatization of common assets violates principles of equality, and thus runs contrary to Article 17 of the Universal Declaration of Human Rights. “We have found similar issues in iron ore, coal, oil & natural gas elsewhere in India,” writes Basu. “As royalty rates are usually set by trying to attract investment into the sector, countries race to the bottom.”
In response, the Indian Supreme Court in 2012 ordered a new levy of 10% of the value of iron ore in Goa be collected and deposited into a new Goa Iron Ore Permanent Fund. This would help ensure that the benefits derived from mineral extraction in Goa would go to the people, and not be diverted to private parties colluding with state officials. The court’s ruling the first time that a court anywhere had ordered such a remedy, and it resulted in the first permanent fund in India.
Significantly, the Court’s ruling relied on the public trust doctrine and principle of “intergenerational equity.” The public trust doctrine declares that governments are trustees of certain resources for the public and future generations, and therefore cannot legally give away or privatize common assets. In essence, they belong to the commons. Under the India Constitution, the state government owns minerals, not the central government, as in the US. It therefore falls on the state of Goa to ensure that the public reaps the full value of its minerals – a failure that the Indian Supreme Court ruling sought to remedy.
Intergenerational equity (which is implicit in the public trust doctrine) requires that future generations be left an equivalent legacy of nature, in similar or better condition, than the current generation has enjoyed.
Of course, implementing the Supreme Court’s ruling has been the hard part. The Goa state and private mining companies are fiercely resisting. As Basu reports, although the Goa Iron Ore Permanent Fund now exists with about US$10 million in it, the State is fighting idea of Citizen Dividends and trying to weaken the operational structure. The Supreme Court has rejected the first two draft plans, in part because of provisions that would make the Fund less than permanent.
This has prompted citizen proponents of the Fund to launch the Goenchi Mati campaign to fight the state’s weak governance plan for the Fund and to stop abusive mining and royalty-collection practices. The group has four major demands:
1) Uphold “zero-loss mining” by ensuring that the State of Goa captures the full value of minerals for the public interest;
2) Treat revenues from minerals as capital receipts (sale of assets), and not as mere windfall revenues to the state. This would help reduce the volatility of government revenues derived from commodities. And
3) Establish a permanent fund that functions as a trust for the people and future generations, not just for iron ore but for other minerals such as bauxite and coal.
4) Pay a Citizen's Dividend from the permanent funds as a kind of universal basic income. ("Since we own the fund in common, all the real income from the fund (after reinvesting for inflation) should be distributed equally to all as a Citizen's Dividend, as a right of ownership.")
The campaign calls for the establishment of a “Future Generations Fund” that would serve as an endowment fund for the people, with income reinvested to ensure that the principal is protected and keeps pace with inflation. One useful model is the Government Pension Fund run by Norway, which deposits 100% of oil revenues into a permanent fund of about US$900 billion, which yields a real return of more than 4% per annum, or about $7,000 per person. By contrast, Alaska puts only 25% of oil revenue into its permanent fund, with the rest into the state treasury, which makes that money subject to all sorts of political and cyclical economic pressures.
Think about how permanent funds for common assets in poorer countries could vastly reduce inequality and poverty! Basu estimates that if the world’s $50 trillion of capital receipts from minerals from 1970 to 2008 had been put into permanent funds, they would generate 3% real returns for everyone and result in about $1.5 trillion in dividends, or about $2,100 per capita -- about $6 daily. This is far more than people in many countries, including India, now earn. Ah, but the political struggle of the people to reap the benefits of what they already own, morally if not legally, remains.
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