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GS Paper: Indian Economy – Mobilization of Resources

  • Why mineral rich districts stay poor: On the District Mineral Foundation Trust

    Why in the News

    Jharkhand holds nearly 40% of India’s mineral wealth, yet many of its mining districts remain among the least developed. The gap exposes the failure of the District Mineral Foundation Trust (DMFT) to channel mining revenue to affected communities.

    What is the District Mineral Foundation Trust (DMFT)?

    1. Origin: The DMFT is a trust established in 2015 in every district affected by mining to reinvest a share of mining revenue in local welfare.
    2. Statutory backing: Formulated under Section 9B of the Mines and Minerals (Development and Regulation) Act, 1957 (amended in 2015).
    3. Rationale: It was set up because mining affected communities bear the greatest social and environmental costs of extraction but receive the least share of its benefits.
    4. Funding: It is financed by contributions that mine lease holders pay as a proportion of royalty.

    Why do mineral rich districts stay poor?

    1. Auction delay: Jharkhand delayed auctions after leases expired, while Odisha auctioned promptly.
    2. Production stagnation: Delayed auctions cut production, which stayed near 23 million tonnes in Jharkhand.
    3. Royalty shortfall: Lower production means lower royalty collections.
    4. Fund starvation: Lower royalties translate into reduced DMFT contributions, so affected villages receive fewer resources.
    5. Spillover decline: As mines shut and leases expired, transport operators, eateries and shops lost business and youth migrated for work.

    How do Jharkhand and Odisha compare?

    1. Auctions: Since 2019-20 India auctioned 434 mineral blocks, Odisha 45 and Jharkhand only three, despite Jharkhand being the richest mineral bearing state.
    2. Production: Between 2018-19 and 2024-25 Odisha’s iron ore output rose from about 120 to nearly 180 million tonnes, while Jharkhand stayed near 23 million tonnes.
    3. Revenue: In 2025-26 Odisha earned nearly Rs 46,000 crore in mining revenue against Jharkhand’s Rs 22,000 crore, though its deposits are less than half of Jharkhand’s.
    4. DMFT accumulation: Nearly Rs 3,700 crore accumulated under West Singhbhum’s DMFT between 2016 and 2026 with little visible welfare gain.

    Why has the money not reached communities?

    1. Missing disclosures: DMFT Rules require every district to publish annual reports, budgets, approved works and beneficiary details.
    2. Opaque records: Across Jharkhand these disclosures are missing, outdated or inaccessible.
    3. Accountability gap: Communities have little means of knowing how thousands of crores collected in their name were spent.

    What are the challenges to the DMFT?

    1. Transparency deficit: Poor disclosure prevents communities from tracking fund use.
    2. Governance and political will: Delayed auctions reflect weak administrative resolve to run the mining economy.
    3. Fund underutilisation: Accumulated funds often stay unspent or are diverted to works unrelated to affected people.
    4. Elite capture: Weak beneficiary identification lets benefits bypass the poorest households.
    5. Cyclical dependence: Fund inflows fall whenever production and royalties decline, starving welfare when it is most needed.
    6. Weak grievance redress: Affected communities lack a clear channel to question spending decisions.

    Conclusion

    The DMFT debate is about restoring trust, not merely accounting. Before announcing new investment summits, Jharkhand must first show it can manage the mineral resources and welfare funds it already possesses.

    Back2Basics: District Mineral Foundation (DMF)

    1. Basis: established under the Mines and Minerals (Development and Regulation) Amendment Act, 2015.
    2. Nature: a statutory non profit trust in every mining affected district.
    3. Funding: contributions from mine lease holders as a percentage of royalty.
    4. Fund use: implemented through the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) for welfare of mining affected people.
    5. Objective: to work for the interest and benefit of persons and areas affected by mining.

    PYQ Relevance

    [2016] What is/are the purpose/purposes of ‘District Mineral Foundations’ in India?
    1. Promoting mineral exploration activities in mineral-rich districts
    2. Protecting the interests of the persons affected by mining operations
    3. Authorizing State Governments to issue licenses for mineral exploration
    (a) 1 and 2 only
    (b) 2 only
    (c) 1 and 3 only
    (d) 1, 2 and 3
    Answer: (b)

  • Op ed makes the case for strategic stockpiling of critical minerals under the National Critical Mineral Mission

    Why in the News

    India committed Rs 500 crore in 2025 towards critical mineral stockpiling under the National Critical Mineral Mission (NCMM). The commitment exposes a tension between long gestation domestic mining and the immediate supply risk that flows from dependence on China for processed minerals and rare earth elements.

    What is the National Critical Mineral Mission (NCMM)?

    1. Mandate: The NCMM is a scheme launched in 2025 to build a framework for self reliance across the critical mineral value chain, from exploration to processing.
    2. Stockpiling seed: It allocated Rs 500 crore in 2025 towards building strategic reserves of critical minerals.

    What are critical minerals and rare earth elements?

    1. Critical minerals: These are minerals essential to the economy and national security whose supply faces a high risk of disruption, such as lithium and cobalt.
    2. Rare earth elements (REEs): These are a set of 17 metallic elements used in permanent magnets, electronics and defence systems, most of which are refined in China.

    Why must a reserve hold processed minerals and not raw ores?

    1. Refining lead time: Converting raw ore into usable inputs needs onshore capacity with a long lead time, so raw stock is of little use during a shock.
    2. Composition rule: A reserve must hold refined rare earth oxides, processed minerals and finished components such as permanent magnets.
    3. Midstream gap: India’s midstream refining capacity is nascent, so supply agreements must cover intermediate goods rather than raw material.
    4. Storage integrity: Refined oxides are sensitive to moisture and oxidation, requiring climate controlled and nitrogen atmosphere warehousing.
    5. Rotation cycle: Reserves cannot stay static, so the government must release older stock into the market while procuring fresh supplies.

    What do international frameworks show about coordinated stockpiling?

    1. Quad Critical Minerals Initiative Framework: The Quadrilateral Security Dialogue (Quad) launched this USD 20 billion framework in 2025 to fortify regional supply chains.
    2. G7 Evian summit 2026: The Group of Seven (G7) reiterated a commitment to establishing a standards based market for critical minerals.
    3. Modelling caution: If seven major economies simultaneously built six month reserves, aggregate demand could consume 34% of annual global cobalt supply and 10% of lithium supply.

    Why can uncoordinated stockpiling worsen the shortage it aims to solve?

    1. Demand inflation: Uncoordinated buying inflates global demand and deepens the very shortages stockpiling is meant to ease.
    2. Volatility risk: It heightens the price volatility that a reserve is supposed to hedge against.
    3. Limits of price floors: A guaranteed minimum purchase price addresses underinvestment but rarely addresses scarcity.
    4. Dynamic price bands: A band with a floor near USD 12,000 and a ceiling near USD 30,000 triggers coordinated buying below the floor and releases above the ceiling.

    Challenges to critical mineral stockpiling

    1. Capital intensity: Specialised storage demands heavy and continuous capital expenditure, commercial expertise and multi stakeholder involvement.
    2. Material decay: Reserves risk technological obsolescence and physical decay unless constantly rotated.
    3. Access in friend shoring: Collaboration with industrialised powers requires hedging mechanisms so access matches the size of India’s contribution.
    4. Delayed releases: Reserve releases can be blocked by vetoes, so pre agreed market and geopolitical triggers are needed to automate them.
    5. Sidelining of emerging economies: Larger consumers can crowd out India unless minimum guaranteed allocation baselines are fixed.
    6. China concentration: China dominates the mining and processing of several rare earths, giving it leverage over prices and export flows.

    Conclusion

    India’s optimal strategy is to join a coordinated stockpiling platform, potentially housed within the G7, which also covers Quad members. This lets India tap a mature ecosystem without bearing the full cost of independent reserves, provided it secures staggered procurement, automatic release triggers and guaranteed allocation baselines.

    Back2Basics: National Critical Mineral Mission (NCMM)

    1. Nodal ministry: Ministry of Mines.
    2. Launched: 2025.
    3. Aim: self reliance across the critical mineral value chain covering exploration, mining, processing and recycling.
    4. Coverage: domestic exploration, overseas asset acquisition, stockpiling and building a processing ecosystem.
    5. Stockpiling outlay: Rs 500 crore seeded in 2025.

    Matching Previous Year Question

    “[2026] Which of the following statements about Rare Earth Elements (REEs) and Critical Minerals is/are correct?
    1. Modern technological innovations including Artificial Intelligence, robotics and space exploration extensively utilise Rare Earth Elements (REEs).
    2. China has the highest share in mining of REEs followed by India.
    3. The Government of India launched the National Critical Mineral Mission (NCMM) in 2025 to establish a robust framework for self-reliance in the critical mineral sector.
    4. Rare Earth Elements are a set of 13 metallic elements.
    (a) 1 and 3 only
    (b) 3 only
    (c) 1, 3 and 4
    (d) 1, 2 and 4
    Answer: A”