Strong opposition from industry and the difficulty in assessing profits from mining operations has forced the government to reconsider this issue, Mines ministry sources told Deccan Herald. The ministry is now considering an increase in royalty from the mining companies.

Under the earlier proposal, mining companies had to contribute 26 per cent of their net profit to a development fund to be utilised for the welfare activities of the people displaced by mining. The ministry expected to rake in Rs 18,000 crore annually under the fund which would also douse opposition to mining activity, especially tribal dominated areas.

However, mining circles including state-run firms have lobbied to dilute this, calling it impractical. Both CII and FICCI have said that 26 per cent profit-sharing would make mining business unviable.

Planning Commission Deputy Chairman Montek Singh Ahluwalia also felt that it would discourage investments and prompt similar demands from other sectors. Questioning the logic of a profit-sharing mechanism for any activity involving displacement of people,
Ahluwalia said that demands for a similar mechanism could affect sectors like railways, thermal power and hydel projects.

The Mines ministry which was giving final touches to the proposed new Mines and Minerals (Development & Regulation) Bill, 2010, incorporating the profit-sharing mechanism, will put the Bill on hold till this issue is sorted out, sources said. The Group of Ministers headed by Pranab Mukherjee is likely to meet again for further discussions on this issue, sources said.