DISCUSSION

NCAER on Mining in Goa

Inconvenient Truths
Rahul Basu

he report on mining in Goa by the National Council of Applied Economic Research (NCAER 2010b) was criticised by Pranab Mukhopadhyay and Gopal K Kadekodi (hereafter MG) in EPW (12 November 2011). This author also commented on the conclusions of the report and raised several ethical issues (EPW, 21 January 2012) (hereafter Basu). R Venkatesan, the lead author of NCAER (2010b), responded to the criticism (EPW, 27 March 2012). This note examines the response to Basu and elaborates the ethical concerns. Venkatesan asserts that our comments on NCAER (2010b) assume that MGs critique is valid and try to add to them. We point out that our commentary and its conclusions are independent of MGs critique. We compare the three principal conclusions of NCAER (ibid) with the revised conclusions reached in Basu, before dealing with the rejoinders in Venkatesan: (1) Mining Share of GSDP: Mining contributes around 5% of Goas gross state domestic product (GSDP) when measured at constant 1999-2000 prices. World iron ore prices increased sharply in January 2008. NCAER (ibid) re-estimates the share of mining in Goas GSDP and anticipates this to be the long-term contribution assuming that the higher iron prices are permanent. At current (2007-08) prices, this would imply a direct plus indirect contribution by mining of 16.94% of Goas GSDP (ibid: 26). In contrast, we found that NCAERs price expectations are poorly informed and iron ore should be expected to maintain its contribution at around 5% of Goas GSDP as anticipated by the constant price series of Goa governments department of planning, statistics and evaluation (DPSE).

(2) Employment: NCAER (ibid: 18) claims that in 2004-05, mining employed, directly and indirectly, about 75,000 workers of the states workforce of 5,82,274. This is close to the estimated tourism employment of 84,150 (ibid: 18). In contrast, we estimated a bottom-up employment gure of only 21,873. Further, as mining stops during the monsoon, the real core employment of Goans is unlikely to exceed 5,500. (3) Social Benets: NCAER (ibid) concludes that the annual social benets of the iron ore mining industry of Rs 2,309.5 crore is greater than the Rs 548.4 crore of environmental losses (ibid: 43). In contrast, we found that just the annual depletion cost of iron ore is much in excess of the annual social benets (Rs 3,615.55 crore compared to Rs 2,309.5 crore). The Rejoinders Venkatesan points out that since Goan iron ore is often blended with higher grade ore, excluding non-Goan iron ore when calculating employment on barges would lead to an underestimate. Accurate segregation of non-Goan iron ore into its three uses (sponge iron, direct exports and blending with Goan iron ore) is not available (KA 2011: 57). Assuming that 100% of the non-Goan iron ore is blended, the number of barges would increase by 49 (300-251) and indirect employment by 441 workers (49* (7 + 2)). Total Goan employment would only increase from 21,873 to 22,314 workers, which is still far below the 75,000 estimated by NCAER (2010b). Our estimate of core Goan employment of 5,500 workers remains unaffected. As regards calculation of depletion premium, Venkatesan refers to ADB (1997), which denes it as the premium imposed
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on the economic cost of depletable resources representing the loss to the national economy in future of using up the resources today. Venkatesan states that In the case of iron ore, since Goa ore is of low grade an application of depletion premium is not warranted. Low grade is not zero value! When the ore is depleted, Goas economy will no longer have this stock of natural wealth. As can be seen, the main conclusions of Basu stand. Ethical Issues Our comment raised the need for (a) disclosure of conicts of interest, and (b) the need to place source data and calculations in the public domain (McCullough and McKitrick 2009). We had also commented that the high price of the report ensures that the average citizen does not buy it. This raised the broader need for a Code of Ethics in Economics (CIE 2011). Venkatesan states,
Basus contention that the 62 page report is priced at Rs 1,000, etc, and sold by the NCAER is incorrect. Indeed, some of the reports prepared for the ministries/departments are placed on their respective websites. As a researcher, I do not wish to comment further on ethical concerns.

Venkatesan is being disingenuous. Many other reports by NCAER are placed in the public domain through the NCAER website; but not this one. It is priced at Rs 1,000 despite being sponsored by the Goa Mineral Ore Exporters Association (GMOEA). A simple test of ethics is to check whether the report reects NCAERs stated core values of rigour, quality and independence (NCAER 2010a: 5-6). We nd that the report undermines these values in many ways. Rigour and Quality We can identify some major examples of poor quality/rigour in the report. There are numerous other minor methodological, factual, arithmetic and spelling errors. (1) Permanent Increase in Price of Iron Ore: As previously noted, NCAER has ignored commodity price cycles, public information on the reasons for
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DISCUSSION

the sharp spurt in iron ore prices (demand from China), the publicly stated expectations of Sesa Goa (Goas largest iron ore exporter) of price declines in 2014, and especially NCAERs own Table 2.5 that implies a 33% drop in price per tonne of Goan exports between 2007-08 and 2008-09 from Rs 3,017 per tonne to Rs 2,012 per tonne (NCAER 2010b: 18). Instead, NCAER relied on a brief analysis in the Economic Survey 2008-09 of commodity price movement, global developments and the Indian economy. The Economic Survey analyses the iron ore market vis--vis other commodities such as crude oil, edible oil, etc. The structural change in iron ore prices was inferred from the Economic Survey analysis. The Economic Survey, when discussing a global supply shock, refers to the impact of commodity price increase on ination, not on the demand-supply situation of the commodity. While the Economic Survey comments that a judgment had to be made on the permanence of the price increase, no conclusion is actually disclosed. NCAER also ignores the statement in the Economic Survey that The global nancial meltdown resulted in a bursting of the commodity bubble, leading to a dramatic drop in most commodity prices (ES 2009: 18). A burst bubble could hardly be considered permanent. NCAER also ignores the different time frames used in viewing ination and social cost benets (longterm is a few years in one case, decades in the other). Despite referring to the World Banks Commodity Price Series in the bibliography, the report uses domestic Wholesale Price Index (WPI) iron ore prices instead of international prices more suited to exported ore (NCAER 2010b: 12). (2) Input-Output Table: We have already pointed out that the input-output table used to calculate the direct and indirect impact of mining on the Goan economy makes some puzzling assumptions, such as transportation being a minor cost (9% compared to Sesa Goas 49%), or a large part of the iron ore being used within the Goan economy, in sectors such as construction and electricity, and
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gas and water supply. This is clearly at odds with reality. As suggested by Venkatesan, we contacted the lead author and the project consultant. For the input-output tables, the project consultant has provided some vague explanation and has promised to discuss the details when this author is in Delhi next. It will not be easy for me to send the worksheets, he stated. It is obviously difcult for outsiders to reproduce NCAERs analysis or check its calculations without ready access to the underlying data. (3) Employment in Iron-Ore Mining: We had earlier highlighted NCAERs assumption that the rural population is insignicant in Goa (ibid: 17, 19). If NCAER had used the National Sample Survey Ofce (NSSO) report 515 consistently, the direct employment gure in 2004-05 would be 6,000 instead of 19,000 (Table 1).
Table 1: Employment in Iron-Ore Mining (NSSO 2005)

mining companies on account of royalty, barge tax, and road infrastructure cess, and to the central government. Public data show that the rst three items are highly overstated. No public data source was found for the taxes paid to the central government (Table 2). The lead author was requested to provide either the GMOEA document reference for their gures (none was provided in the report) or put us in touch with the appropriate person. No response has been forthcoming. (5) Costs of Mining: The report derives the costs of mining from the Integrated Research and Action for Development (IRADe) report on Natural Resource Accounting for Goa (IRADe 2008: 41). The IRADe report is quite inappropriate, and improperly used. (a) Solid waste costs: NCAER takes 100% of the unaccounted costs of landll sites of Rs 11 crore and avoidance cost of solid
Units Rural Urban Total Source: NSSO 2005

Population

(000s) 638 399 1,037 % 61.5% 38.5% 100.0% Labour Force Participation Rate % 38.5% 39.8% 39.0% Labour force (000s) 246 159 404 Unemployment rate % 11.1% 8.7% 10.2% Unemployed (000s) 27 14 41 Usually working persons (000s) 218 145 363 Usually working persons in mining and quarrying % 0.0% 4.0% 1.5% Usually working persons in mining and quarrying (000s) 6 6

A-5 and A-7 Calculated by author Pages 69 and 70 Calculated by author Pages 166 and 167 Calculated by author Calculated by author Pages 142 and 145 Calculated by author

Table 2: Tax Estimates for Mining Companies (NCAER/GMOEA)

Rs Crore NCAER/GMOEA Actual Source

1 Barge tax 2 Road infrastructure cess 3 Royalty paid at 10% ad valorem tax 4 Taxes paid to central government including export duty

12 50 300 250

5.36 20.46 33.97 NA

GBTAB 2009 GSB 2010b GSB 2010a No public data found

As already noted, the Fifth Economic Census in 2005 (DPSE 2005:12) reports that the total number of people usually working in Goan mining and quarrying is 3,412, plus 3,161 hired workers, totalling to 6,573 workers, not very different from the NSSO calculations of 6,000. Basu detailed how GMOEA has highly overestimated indirect employment from mining. NCAER appears to have reproduced data from its sponsor without independent scrutiny. (4) Benets of Mining: NCAER (2010b) uses GMOEAs estimates of taxes paid by
SEPTEMBER 15, 2012

waste management of Rs 0.4 crore from IRADe. However, IRADes calculation is for municipal solid waste (IRADe 2008: 13). Total solid waste under the IRADe report is 41,423 tonnes per year (ibid: 33). The iron ore overburden for 200708 works out to 7,68,99,187 tonnes.1 If we simply scale the landll number, we get an astounding cost of Rs 20,421 crore per annum. (b) Pollution costs: NCAER (ibid: 42) states:
Air pollution due to Iron Ore mining is considered to be approximately 10% of the total industrial air pollution in Goa.
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This is because the mining industry only occupies <3% of the total area in Goa. Pollution caused by industries in an area cant exceed more than three times the area occupied.

The report takes 10% of the IRADe estimate of the cost of pollution by industries to derive the cost of mining air pollution. The logic is untenable. Further, the IRADe bottom-up estimate of industrial air pollution cost does not include mining or transport (IRADe 2008: 43). Air pollution from mining and its associated transport can be many multiples of that of Goan industry. (c) Recalculation of forest values: NCAER adapts the Madhu Verma report in 2000 (NCAER 2010b: 61) rather than use the higher gures from the IRADe report in 2005. IRADe correctly used the 2,156 sq km estimate for Goa forests from the 2003 State of Forest Report (IRADe 2008: 59). Instead of following IRADe, NCAER used the ofcially notied estimate of 1,424 sq km of forests in Goa and simply scaled IRADes numbers proportionately (1,424/2,156) (NCAER 2010b: 61). Many of the IRADe estimates should not be scaled by forest area. For example, the ecotourism benet is estimated using the number of tourists visiting Goa, and has no direct connection to the forest area. NCAER has completely ignored the earlier report on natural resource accounting for Goa by The Energy and Resources Institute (TERI) in 2000, which included estimates of the resource depletion costs of mining (TERI 2000). In fact, the IRADe report is a follow-up of the TERI report. IRADe comments on the TERI reports analysis of mineral resources:
Apart from depletion of ores, the other external costs of mining are resource costs (due to depletion of mineral and groundwater depletion), environmental costs (due to loss of forests and biodiversity), health and other costs (due to air and water pollution) and other social costs such as loss of agricultural livelihoods (IRADe 2008: 107).

force-tted to the conclusion because time after time the report errs in favour of mining relative to highly respected independent sources. The internal quality assurance process of NCAER appears to be severely compromised. These failures may be recurrent, even common (MZPSG 2010). There seems to be nothing exceptional or different about this report. In this light, all research output of NCAER should be handled with extreme caution. Conclusions We call on NCAER to (a) immediately withdraw this report and apologise to the citizens of Goa, (b) investigate the root causes of the failure, (c) scrutinise other recent reports that may have been affected by similar issues and concerns, and publicly report the ndings of the investigation, and (d) put in place mechanisms to prevent this massive governance failure, including a proper code of ethics encompassing full disclosure of conicts of interest and placing assumptions, data and calculations in the public domain. The American Economic Association has recently adopted a policy for all its journals that could serve as a model (AEA 2012). Goan state policy should take into account a steep decrease in mining that is likely in the near future and the accompanying social disruption. The expected decline in mining taxes makes it especially important that planning begin now.
The author would like to acknowledge helpful inputs from Sudipta Basu. Rahul Basu (rahulbasu1@gmail.com) is the founder and CEO of Ajad and is based in Goa.

Note
1 Goan iron ore exports in 2007-08 (3,34,34,429 tonnes) (GMOEA 2010) times the overburden ratio of 2.3 (DMG 2011).

NCAER has also ignored the detailed study by TERI on the impact of mining on society and health in the mining belt (TERI 2006). The many basic errors in NCAER (2010b) leave readers with the strong impression that the analysis has been
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References
ADB (1997): Guidelines for the Economic Analysis of Projects (Asian Development Bank: Economics and Development Resource Centre). AEA (2012): American Economic Association Disclosure Policy (American Economic Association), viewed on 11 August (http://www.aeaweb.org /aea_ journals/AEA_Disclosure_Policy.pdf).
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CIE (2011): Conicts of Interest in Economics, Tilman Brgers, viewed on 8 August (http:// sites.google.com/site/cointrest/home). DMG (2011): Mining Areas, Directorate of Mines & Geology, Government of Goa, Panaji, viewed on 26 June (http://www.goadmg.gov.in/miningarea.htm). DPSE (2005): Report on Fifth Economic Census, Directorate of Planning, Statistics & Evaluation, Government of Goa, Panaji, viewed on 26 June (http://goadpse.gov.in/publications/ goa-eco-census-report-2005.pdf). ES (2009): Challenges, Policy Response and Medium-term Prospects (Chapter 2), Economic Survey 2008-09. GBTAB (2009): The Goa Barge Tax (Amendment) Bill, 2009 Bill No 31 of 2009, Ofcial Gazette Series No 39, Government of Goa, Panaji, 24 December, viewed on 27 June 2011 (http:// www.goachamber.org/cms/index.php?option =com_docman&task=doc_download&gid=274). GMOEA (2010): GMOEA Selected Statistics 2009-10, Goa Mineral Ore Exporters Association, Panaji. GSB (2010a): Revenue from Mines, Goa State Budget 2010-11, Finance Department, Government of Goa, Panaji, viewed on 27 July 2011 (http://www.goa.gov.in/portalweb/com/infotech/goaonline/importantupdates/budget 201011 /receipts/d83.htm). (2010b): Revenue from Transport, Goa State Budget 2010-11, Finance Department, Government of Goa, Panaji, viewed on 27 July 2011 (https://www.goa.gov.in/portalweb/com/infotech/goaonline/importantupdates/budget 201011/receipts/d13.htm). IRADe (2008): Natural Resource Accounting for Goa, Integrated Research and Action for Development (IRADe), New Delhi, March, viewed on 27 June 2011 (http://www.irade. o r g /g o a % 2 0 N a t u r a l % 2 0 r e s o u r c e % 2 0 accounting%20report.pdf). KA (2011): Report on the Reference Made by the Government of Karnataka under Section 7(2-A) of the Karnataka Lokayukta Act, 1984 (Part II), Karnataka Lokayukta, Bangalore, 27 July. McCullough, Bruce D and Ross McKitrick (2009): Check the Numbers: The Case for Due Diligence in Policy Formation, Fraser Institute (February). MZPSG (2010): Iron and Steal: The POSCO-India Story, Mining Zone Peoples Solidarity Group (October). NCAER (2010a): Annual Report 2010, National Council of Applied Economic Research, New Delhi, viewed on 9 July 2011 (http://www. ncaer.org/downloads/AnnualReports/Annual Report_2010.pdf). (2010b): A Study of Goan Iron Ore Mining Industry, National Council of Applied Economic Research, New Delhi. NSSO (2005): National Sample Survey Report 515: Employment and Unemployment Situation in India, 2004-05, National Sample Survey Ofce, Ministry of Statistics and Programme Implementation, Government of India, New Delhi, viewed on 26 June 2011 (http://www.mospi. gov.in/mospi_nsso_rept_pubn.htm). TERI (2000): Pilot Project on Natural Resources Accounting in Goa (Phase 1), TERI Project report No 99RD61, The Energy and Resources Institute, New Delhi. (2006): Environmental & Social Performance Indicators and Sustainability Markers in Minerals Development: Reporting Progress towards Improved Ecosystem Health & Human Well-being, Phase III, TERI Project Report No 2002 WR41, TERI Western Regional Centre, Goa, viewed on 26 June 2011 (http://idlbnc.idrc.ca/dspace/bitstream/10625/33366/1/ 125313.pdf).

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