On Minerals and Mines, Strike A New Federal Balance (IE)
General Studies Paper II (Governance, Constitution, Polity, Social
Justice and International Relations)
General Studies Paper III (Resource Mobilization, Growth, and Investment)
Introduction
The editorial discusses the passing of
the Mines and Minerals (Development and Regulation) Amendment Bill, 2026,
which limits the power of state governments to impose levies on mineral-bearing
lands. This legislative move follows a landmark Supreme Court judgment that
upheld the constitutional right of states to tax mineral rights. While
the Centre aims to centralise tax rules to ensure price stability and attract
investment, state governments view it as a direct threat to their fiscal
autonomy and revenue generation.
1. Legislative Friction and the Push for
Uniformity
·
Central Rationale: The amendment
aims to streamline regulations, eliminate varying state-level charges, and
provide long-term certainty for global and domestic investors.
·
Supreme Court Precedent: The legislation
comes following a Supreme Court ruling that upheld state rights to tax mineral
lands and collect historical arrears dating back to April 2005.
·
State Interventions: Following the SC
verdict, several states introduced state-specific levies such as Jharkhand
raising taxes on iron ore and Tamil Nadu imposing taxes on limestone. Across
India, states impose around 14 types of varying levies, and the Centre's
central amendment seeks to bring price uniformity across critical minerals.
2. Revenue Concerns Vs.
Investor Climate
·
High Effective Tax Rates: India’s effective
mining tax rate exceeds 50% of revenue, compared to the global average of 35%
to 40% (as highlighted by a FIMI-EY report), making tax rationalisation crucial
for competitiveness.
·
Impact on State Budgets: Mineral-rich
states like Jharkhand, Odisha, and Chhattisgarh rely heavily on mining levies
as a primary source of non-tax revenue.
·
Assurances vs. Fears: Although
official government fact-sheets state that states will continue to receive the
vast majority of overall mining revenue, state governments fear a further
narrowing of their limited avenues for independent resource generation.
3. Strategic Imperative for Critical
Minerals
·
Global Competitiveness: A stable,
predictable mining framework is vital to the success of India’s National
Critical Mineral Mission.
·
Infrastructure Costs: Unchecked and
varying local taxes risk inflating raw material prices, feeding directly into
higher national infrastructure and manufacturing costs.
·
Balanced Growth: Creating a
unified market structure is necessary to attract high-value foreign direct
investment and technological expertise in resource extraction.
Conclusion
The Mines and Minerals (Development and Regulation)
Amendment Bill, 2026 highlights the ongoing tension between national economic
efficiency and fiscal federalism. The Centre’s effort to cap state levies
addresses high effective tax rates (exceeding 50%) and standardizes mineral
costs to attract capital. However, because mineral-rich states rely heavily on
non-tax revenues from resources like iron ore and limestone, restricting their
taxing powers risks financial strain. A durable resolution requires a
collaborative framework that provides revenue safeguards for states while
maintaining a stable, global-standard investment climate.
SOURCE: https://indianexpress.com/article/opinion/editorials/on-minerals-and-mines-strike-a-new-federal-balance-10839259/
Question
"Recent legislative measures restricting the
power of state governments to levy local taxes on mineral-bearing lands aim to
enhance ease of doing business, yet raise concerns regarding the erosion of
fiscal federalism." Critically evaluate this statement. (10 Marks, 150
Words)
Introduction
The Supreme Court’s 9-judge bench ruling
in Mineral Area Development Authority (MADA) v. SAIL
(2024) reaffirmed state powers to levy
taxes on mineral-bearing lands under Entry 49 of List II. In response, central legislative measures such as the Mines
and Minerals (Development and Regulation) Amendment Act seek to restrict
uncoordinated local levies, balancing economic competitiveness with federal
autonomy.
Arguments for Central
Intervention
1)
High Effective Tax Rates: Unregulated state cesses elevate total tax incidence
significantly above global benchmarks, disincentivizing private and foreign investments.
ü Government of India data on coal mining shows that additional flat
cesses previously raised the effective tax incidence on low-grade coal (e.g.,
G-11 non-coking coal) to as high as 65.85%, drastically exceeding global
mining tax averages.
2) Predictable Tax
Regime: A central ceiling eliminates fragmented state-wise taxation,
providing fiscal predictability necessary for long-term mining capital
expenditure.
ü NITI Aayog's policy frameworks highlight that unified central ceiling
similar to the national Royalty Framework under MMDR prevent states from
unilaterally altering rates, providing the long-term fiscal stability required
for multi-decade mining investments.
3)
Mitigating Cascade Effects: Mining products
are key industrial inputs; unchecked local levies
increase logistics and raw material costs for core infrastructure sectors like
steel, power, and cement.
ü Ministry of Coal
analysis shows that unchecked levies on raw coal directly inflate thermal power
tariffs; for instance, reducing uncoordinated coal
levies lowers power generation costs by 17–18 paise per kWh, directly
dampening input costs for national steel and infrastructure projects.
State Concerns and Fiscal
Federalism
1)
Revenue Vulnerability: Mineral-rich states (e.g., Jharkhand, Odisha, Chhattisgarh)
rely heavily on land and mineral levies to fund local welfare, environmental
remediation, and infrastructure.
ü Jharkhand levied a Mineral-Bearing Land Cess (up to ₹400/tonne on iron
ore) to secure an estimated ₹11,000 crore annually, demonstrating how heavily
resource-rich states depend on such land levies to directly fund local social
welfare and regional infrastructure.
2)
Shrinking Non-Tax Avenues: Post-GST subsumption of local indirect taxes, land-based
mineral levies remain one of the few flexible fiscal tools available to states.
ü Post-GST
subsumption of local indirect taxes (such as octroi, entry tax, and purchase
tax), states lost key revenue levers; Odisha’s pursuit
of ₹1 lakh crore in mineral land tax arrears under the ORISED Act highlights
land-based mineral taxation as one of the few remaining flexible non-tax fiscal
avenues.
3)
Constitutional Encroachment: Overriding state powers under Entry 49 (List II) via central
regulatory statutes (Entry 54, List I) erodes the constitutional scheme of
fiscal federalism.
ü The Union
Government Enacting Section 9D of the MMDR Amendment Act (under Entry 54, List
I) to limit state levies overrides the state’s explicit constitutional mandate
under Entry 49, List II (Taxes on lands and buildings), as affirmed by the
Supreme Court in MADA v. SAIL (2024).
Conclusion
To harmonise ease of doing business with fiscal federalism, a cooperative
framework akin to a GST-style Council for mining should be instituted to
determine consensual ceilings on local cesses while protecting state fiscal
interests