Why in the News
Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026 last week, barring States from imposing specified levies on mineral rights and on mineral bearing land. The bar removes the very taxing power the Supreme Court had affirmed for States on 25 July 2024. Mineral bearing States say the change strips out a revenue stream they control fully, while the Centre says uncapped State levies raise the cost of minerals for the whole economy.
What is the Mines and Minerals (Development and Regulation) Amendment Bill, 2026?
- About: It amends the Mines and Minerals (Development and Regulation) Act, 1957, the parent law governing grant of mineral concessions and regulation of mines.
- Core bar: It restricts States from imposing specified levies on mineral rights and on mineral bearing land.
- Extinguishment of past dues: It wipes out unpaid or unrecovered dues arising from such levies imposed before the amendment comes into force.
- Scale of the dues: Estimates place outstanding dues of this kind across the mining sector at about Rs 2 lakh crore.
- Ceiling design: Mines Ministry officials state that about 14 levies in the mineral sector will survive, subject to a combined percentage ceiling.
- Stated purpose: The Centre frames the measure as fiscal certainty for mining companies over their total statutory burden.
What is royalty on minerals?
- About: Royalty is the payment a lease holder makes to the State government for every unit of mineral extracted under a mining lease.
- Who fixes it: Rates are specified in the Schedules to the Mines and Minerals (Development and Regulation) Act, 1957 and revised by the Union government, not by the State that receives the money.
What is the District Mineral Foundation?
- About: A non profit trust set up in every mining affected district, funded by a statutory contribution from lease holders, created by the 2015 amendment.
- Use of funds: Money is spent on people and areas affected by mining under the Pradhan Mantri Khanij Kshetra Kalyan Yojana.
What is the National Mineral Exploration Trust?
- About: A trust created by the 2015 amendment and funded by a contribution equal to 2 per cent of royalty paid by lease holders.
- Use of funds: It finances regional and detailed mineral exploration through accredited agencies.
What is the current status of State powers to tax mineral rights in India?
- Judicial position: A nine judge Constitution Bench held on 25 July 2024 that States hold legislative competence to tax mineral rights and mineral bearing land.
- Precedent overruled: That ruling overruled India Cement Ltd v State of Tamil Nadu (1989), which had treated royalty as a tax and placed the subject beyond State competence.
- Statutory position now: The 2026 amendment bars the specified levies, so a power the Court restored stands narrowed by ordinary legislation.
- Levies that survive: About 14 levies continue, including environmental and pollution cesses, subject to a combined ceiling still to be fixed.
- Centrally fixed payments: Royalty, District Mineral Foundation contributions and National Mineral Exploration Trust contributions remain set under central law.
- Effect on accrued claims: Levies imposed before commencement lose their recoverability, so demands already raised become unenforceable.
Constitutional Provisions Related to taxation of mineral rights
- Article 246: Distributes legislative power between Parliament and State legislatures through the three lists of the Seventh Schedule.
- Entry 54, Union List: Regulation of mines and mineral development to the extent Parliament declares expedient in the public interest.
- Entry 23, State List: Regulation of mines and mineral development, expressly subject to Entry 54 of the Union List.
- Entry 49, State List: Taxes on lands and buildings, the entry States have relied on for a mineral bearing land cess.
- Entry 50, State List: Taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
- Article 265: Bars the levy or collection of any tax except by authority of law.
- Article 300A: Bars deprivation of property save by authority of law, the provision invoked when accrued statutory dues are extinguished.
- Article 39(b): Directs the State to ensure that ownership and control of material resources are distributed to subserve the common good.
Why does the 25 July 2024 ruling sit at the centre of the dispute?
- What was decided: The Court upheld the power of States to tax mineral rights and mineral bearing land as a distinct field from royalty.
- What was overruled: The 1989 India Cement position, that royalty is itself a tax, had blocked States from taxing the same subject for 35 years.
- What States did next: Several mineral bearing States began framing fresh cesses on mineral bearing land after the judgment.
- What the Centre saw: Mines Ministry officials describe the resulting levies as excessive cesses stacked on top of existing statutory payments.
- How Parliament responded: The amendment uses the limitation power built into Entry 50 to restrict what the Court had permitted.
Why do mineral bearing States say the Bill damages their finances?
- Dependence on mining: Mining revenue accounted for about 84.9 per cent of Jharkhand’s own non tax revenue in the 2024 to 2025 financial year.
- Forgone cess: The Mineral Bearing Land Cess was expected to yield about Rs 11,000 crore a year for Jharkhand alone.
- Dues written off: Outstanding dues across the mining sector estimated at about Rs 2 lakh crore cease to be recoverable.
- Fiscal capacity argument: The Jharkhand Chief Minister wrote to the Prime Minister that mineral revenues are a critical component of the State’s fiscal capacity and not marginal receipts.
- Federal objection: The Kerala Chief Minister has raised concerns over the implications of the amendment for India’s federal structure.
- Political response: Jharkhand has threatened protests against the amendments.
What is the Centre’s case for restricting State levies?
- Cost of key minerals: Unchecked State levies raise mineral prices and feed into inflation and infrastructure costs.
- Predictability for industry: A single combined ceiling gives mining companies certainty over their total fiscal burden across States.
- Cumulative burden: Companies already pay royalty, District Mineral Foundation and National Mineral Exploration Trust contributions and environmental and pollution cesses.
- The largest single addition: Industry assessment identifies the mineral bearing land tax as the biggest additional burden of the recent levies.
- A ceiling, not abolition: About 14 levies survive, with the combined percentage to be fixed after consulting all States.
- Limited realised loss: Industry view holds that most of these levies were legally contested for decades, so little was actually collected.
Does fiscal certainty for industry justify overriding a power the Court has just affirmed?
- Two legitimate claims: Investment certainty in a capital heavy sector sits against the fiscal autonomy of the States that hold the minerals.
- A judicial gain reversed: States won the power in 2024 and lost its practical use in 2026 without any change in the constitutional text.
- The retrospective element: Extinguishing accrued dues removes revenue already claimed, which goes further than limiting future levies.
- Sequence of consultation: The ceiling is to be fixed after the bar is enacted, so States negotiate the number after losing their leverage.
- Who gains and who pays: The saving accrues to mining companies and mineral consuming States, the loss falls on a small group of mineral bearing States.
- Cost borne locally: Land loss, displacement and pollution stay with the producing State even after its claim on the rent is narrowed.
Major debates surrounding taxation of mineral rights
- Royalty as tax or as consideration: India Cement treated royalty as a tax, the 2024 ruling treated it as contractual consideration, and that classification decides State competence.
- Reach of the Entry 50 limitation: How far Parliament may hollow out a State taxing entry through a limitation clause remains legally contested.
- Recovery of past dues: The 2024 ruling allowed staggered recovery of past demands, the amendment extinguishes them outright.
- Producer against consumer States: Mineral bearing States argue they carry the ecological and social cost while value addition and tax revenue accrue elsewhere.
- Cooperative against unilateral federalism: The Centre frames the change as integration of a national market, States frame it as unilateral action on their own revenue base.
- Deepening vertical fiscal imbalance: Non tax mineral revenue is one of the few sources States control fully, so its removal raises dependence on central transfers.
Challenges to the Mines and Minerals Amendment Bill
- Litigation risk: States can challenge the bar and the extinguishment of accrued dues as a colourable exercise of legislative power. e.g. Jharkhand and Kerala both registered formal objections within days of the Bill’s passage in August 2026.
- Concentrated revenue shock: A small set of States carries almost the entire loss. e.g. Odisha and Jharkhand together account for the bulk of India’s iron ore and coal output.
- Undecided ceiling: The combined percentage is unfixed at the point of enactment, leaving States unable to plan budgets. e.g. the Mines Ministry states only that the figure will follow consultation with all States.
- Weak district level spending: Money already collected for mining affected areas is poorly used. e.g. audits have repeatedly flagged large unspent District Mineral Foundation balances in mining districts.
- Unpriced ecological damage: Removing land based levies weakens the price signal for land degradation. e.g. the Shah Commission findings preceded the suspension of iron ore mining in Goa in 2012.
- Certainty alone does not unlock supply: Fiscal predictability does not resolve clearance and land bottlenecks. e.g. several auctioned coal blocks remain unoperationalised for want of forest clearance.
- Weak consultation machinery: Resource disputes between the Union and States lack a standing forum for settlement. e.g. the Inter State Council has met only rarely since its creation in 1990.
Conclusion
The dispute is about who captures the rent from a fixed natural resource, not about the rate of any single cess. Parliament has passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026, and the measure now moves to Presidential assent and commencement. The next concrete step named by the Mines Ministry is fixing the combined percentage ceiling on the roughly 14 surviving levies after consulting all States. Until that ceiling is notified, mineral bearing States carry a quantified loss against an unquantified entitlement.
What is Fiscal Federalism?
- About: Fiscal federalism is the division of taxing powers, spending responsibilities and intergovernmental transfers between levels of government in a federation.
- Rationale: Revenue raising capacity concentrates at the Centre while service delivery obligations sit with States, so the system needs a transfer mechanism to close the gap.
- Vertical imbalance: The Union collects far more revenue than it spends directly, and States spend far more than they collect.
- Horizontal imbalance: States differ in fiscal capacity and in need, corrected through the Finance Commission’s devolution formula.
- Third tier imbalance: Panchayats and municipalities depend on State transfers and raise very little of their own revenue.
Key Concerns Regarding Fiscal Federalism
- Shrinking divisible pool: Cesses and surcharges are not shareable with States, so headline devolution overstates what States actually receive.
- Erosion of State tax autonomy: The Goods and Services Tax subsumed most State indirect taxes into a Council driven rate structure.
- Conditionality in transfers: Centrally sponsored schemes carry matching share and design conditions that crowd out State priorities.
- Asymmetric borrowing limits: Article 293 lets the Union set conditions on State borrowing with no equivalent constitutional check on Union borrowing.
- Weak third tier finances: State Finance Commissions are constituted irregularly and their recommendations are frequently not acted upon.
- Narrowing of own revenue: Removing State levies on natural resources further reduces the small set of taxes States control fully.
Constitutional Framework Governing Fiscal Federalism
- Article 246 and the Seventh Schedule: Allocate legislative and taxing subjects across the Union, State and Concurrent Lists.
- Article 246A: Gives Parliament and State legislatures concurrent power to levy the Goods and Services Tax.
- Article 265: Bars any tax except by authority of law.
- Article 268: Provides for duties levied by the Union but collected and appropriated by the States.
- Article 269: Provides for taxes levied and collected by the Union but assigned to the States.
- Article 270: Governs distribution of net proceeds of Union taxes, excluding cesses and surcharges from the divisible pool.
- Article 271: Allows the Union to levy a surcharge on taxes for its own purposes.
- Article 275: Provides statutory grants in aid from the Union to States in need of assistance.
- Article 279A: Constitutes the Goods and Services Tax Council.
- Article 280: Constitutes the Finance Commission every fifth year to recommend devolution and grants.
- Article 282: Permits discretionary grants by the Union or a State for any public purpose.
- Article 293: Regulates State borrowing and requires Union consent where the State is indebted to the Union.
Laws and Rules Governing Mining in India
- Mines and Minerals (Development and Regulation) Act, 1957: The parent law for grant of mineral concessions and regulation of mines and mineral development.
- Landmark change under the 2015 Amendment: Made auction the compulsory route for granting concessions and created the District Mineral Foundation and the National Mineral Exploration Trust.
- Amendment of 2021: Removed the distinction between captive and merchant mines and allowed sale of a share of captive production.
- Amendment of 2023: Created the exploration licence and empowered the Centre to auction critical and strategic minerals listed in Part D of the First Schedule.
- Mines Act, 1952: Governs safety, health and working conditions of persons employed in mines.
- Coal Mines (Special Provisions) Act, 2015: Provides for reallocation of coal blocks cancelled by the Supreme Court in 2014.
- Offshore Areas Mineral (Development and Regulation) Act, 2002: Governs mineral concessions in territorial waters and the exclusive economic zone.
- Mineral Concession Rules, 2016: Prescribe the procedure for grant, renewal and transfer of concessions outside the auction route.
- Mineral (Auction) Rules, 2015: Prescribe the electronic auction process for mining leases and composite licences.
- Mineral Conservation and Development Rules, 2017: Prescribe scientific mining, progressive mine closure and conservation obligations.
- Atomic Minerals Concession Rules, 2016: Govern concessions for the atomic minerals listed in Part B of the First Schedule.
Back2Basics: Mines and Minerals (Development and Regulation) Act, 1957
- Enactment and ministry: Enacted in 1957 and administered by the Ministry of Mines.
- Constitutional hook: Made under Entry 54 of the Union List, declaring Union control over regulation of mines expedient in the public interest.
- Classification of minerals: Divides minerals into major minerals regulated by the Centre and minor minerals regulated by State governments.
- Concession types: Provides for the reconnaissance permit, prospecting licence, exploration licence and mining lease.
- Royalty and dead rent: Rates are set out in the Second and Third Schedules and revised by the Union government.
- Lease tenure: A mining lease granted through auction runs for 50 years, after which the area is re auctioned.
- Institutions created: The District Mineral Foundation and the National Mineral Exploration Trust, both introduced by the 2015 amendment.
Government Initiatives
- National Mineral Policy, 2019: Sets the policy frame for exploration, sustainable mining and a transparent concession regime.
- National Critical Mineral Mission, 2025: Covers domestic exploration, overseas asset acquisition, recycling and stockpiling of critical minerals.
- Pradhan Mantri Khanij Kshetra Kalyan Yojana: Channels District Mineral Foundation funds into drinking water, health, education and livelihoods in mining affected areas.
- Khanij Bidesh India Limited: A joint venture of NALCO, Hindustan Copper and Mineral Exploration and Consultancy Limited to acquire mineral assets abroad.
- National Mineral Exploration Trust: Funds regional and detailed exploration carried out by notified and accredited agencies.
- Mining Tenement System: Provides a single digital registry of concessions, production and statutory payments across States.
- Star Rating of Mines: Rates operating mines on scientific mining, environmental management and community engagement.
Key Facts about India’s Mineral Sector
- Global standing: India is among the largest global producers of coal, iron ore, bauxite and chromite.
- Leading States: Odisha, Jharkhand, Chhattisgarh, Rajasthan and Karnataka account for the bulk of major mineral production value.
- Critical minerals list: The Ministry of Mines released a list of 30 critical minerals in 2023, of which 24 were brought under central auction.
- Auction regime: Auction has been the only route for granting major mineral concessions since the 2015 amendment.
- Geological Survey of India: Established in 1851, it is the principal agency for baseline geoscience and regional exploration.
- Sector share: Mining and quarrying contribute a little over 2 per cent of India’s gross value added.
Challenges in India’s Mineral Sector
- Exploration deficit: Only a small share of India’s obvious geological potential has been explored in detail. e.g. India’s annual greenfield exploration spending is a fraction of what Australia and Canada commit each year.
- Land and forest clearance delays: Mineral bearing districts overlap heavily with forest and Fifth Schedule areas. e.g. the Hasdeo Arand coal blocks in Chhattisgarh have faced sustained opposition over forest loss.
- Displacement without title: Mining displaces communities whose land rights are unrecorded, so compensation does not reach them. e.g. Gond families in the Panna belt cannot claim compensation for want of recorded patta.
- Import dependence in critical minerals: India imports nearly all its lithium, cobalt and rare earth requirements. e.g. a Khanij Bidesh India led consortium lost the Mt Marion and Wodgina lithium bids in Australia to POSCO.
- Illegal mining and revenue leakage: Unauthorised extraction of minor minerals such as sand is widespread and poorly policed. e.g. the Shah Commission documented large scale illegal iron ore mining in Goa and Karnataka.
- Mine safety and abandoned workings: Unscientific closure leaves permanent hazards near habitations. e.g. the 2018 flooding of a rat hole coal mine at Ksan in Meghalaya killed fifteen workers.
- Value addition gap: India exports ore and imports processed material. e.g. the absence of domestic spodumene concentrate capacity means lithium ore cannot be processed within India.
Way Forward
- Notify the ceiling before commencement: Fix the combined percentage in consultation with mineral bearing States so the fiscal loss is quantified in advance.
- Create a transition window: Route a defined share of central mineral revenue back to affected States for a fixed period to absorb the shock.
- Fund exploration at scale: Expand National Mineral Exploration Trust outlays and open exploration licences to specialised junior explorers.
- Tighten District Mineral Foundation spending: Impose outcome linked utilisation targets and publish district level expenditure against them.
- Build downstream processing: Support refining and concentrate capacity so critical mineral ore is processed within India.
- Streamline clearances: Provide a single window with statutory timelines for forest, environment and land approvals in auctioned blocks.
- Institutionalise consultation: Route Union and State disputes over resource taxation through the Inter State Council before legislating on them.
Matching Previous Year Question
“[2025, GS2, 15 marks] Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?”


