Natural Resources Revenue Buoyancy in India: Empirical Evidence From State-specific Mining Regime

The dynamics of natural resources revenue-the payment due to the sovereign owner (government) in exchange for the right to extract the mineral substance-is complex, how it is fixed and paid. It is controversial and significant, as it is a revenue that is unique to the resources sector and also that has been fixed and paid in multiple extractive tax regimes, sometimes on the measures of profitability, but more often based on ad valorem (value based) or the unit of the mineral extracted. We try to analyse how dynamic revenue from natural resources across the States in India , within a comparative framework with other (direct and indirect) taxes. Using the ARDL methodology, we have tried to estimate the revenue buoyancy within States and between the States in a panel, and analysed the short run and long run coefficients and their speed of adjustment. Using HP filter, we tried to estimate the potential GDP, and also analysed the cyclicality of revenue buoyancy using output gap variable across states. Our findings revealed that revenue from natural resources is a buoyant source of revenue, though there is distinct State-specific differentials. The policy implication of our study for the natural resources sector is the rate rationalisation as higher rates revised upward every three years through Royalty Study Group by Government of India can affect the revenue augmentation if Laffer Curve starts operating and in turn it affects the firm level competitiveness. The decision of shifting the mining regime from tonnage regime to ad-valorem regime for non-atomic non-ferrous is welcome, as it is market-linked.