Consider a very poor family who discover a pot of gold coins in their ancestral hut. The local laws say that the gold belongs to the family and it could be their chance, finally, to get out of poverty. However the local government insists that it is to be sold at the price that it stipulates.The gold coins have some impurity that needs cleaning up and it costs Rs 250 to Rs 325 to do that. The market value of cleaned-up gold is Rs 2000. But the government says that the family can only sell it at Rs 27. So while those who find the treasure make only Rs 27, those who buy it make close to Rs 1500.

Let us add another dimension to this story. The government had, at one point, set the price at Rs 24.5 and the market value was in several hundreds. In a short period, the market value went up by five times. The family begged the government to allow it to sell its gold nuggets at a higher price now. The government ‘generously’ allowed the family to sell at an increased price of Rs 27.5 instead of the initial Rs 24.5? What would you think of the government?

Would you believe that this is almost the same as what is happening with respect to iron ore? States like Orissa and Jharkhand, which are among the poorest have a lot of iron ore. They would like to sell it and get out of their backwardness. However, as recent articles have pointed out, it only takes Rs 250-Rs 325 per tonne to extract the ore from captive mines, while the market price is around Rs 2000 per tonne. But the central government has set the lease rate (on an average) at around Rs 27 per tonne. Now I hope you understand why Orissa and Jharkhand, despite being rich in minerals, cannot get out of their poverty.

... contd.