The 9 judge bench of the Supreme Court (SC) in its recent judgement has held that Indian states have the power to tax mining activities and collection of ‘royalties’ from mining leaseholders is not a tax. The judgment effectively overturns the Supreme Court’s previous position established in the 1989 case of India Cements Ltd. v. State of Tamil Nadu, which had classified royalty as a form of tax.
| SC Verdict on state’s power to tax mining activities explained 1. Parliament through the Mines and Minerals (Development and Regulation) Act of 1957, cannot limit the power of State legislatures to tax mineral-bearing lands and quarries. It frees the states from the restrictions imposed by the Centre, which is in tune with the federalist principles of governance. 2. Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. 3. Central Government can amend royalty rates, but it cannot impose taxes on mineral rights under the Mines and Minerals (Development and Regulation) Act (MMDR Act). Implications of the Verdict 1. The ruling is a victory for mineral-rich states like Odisha, Jharkhand, and Chhattisgarh, as it allows them to impose additional levies on mining companies operating within their territories. This could enhance their revenue from mineral extraction activities. 2. The verdict further would embolden fiscal federalism and help in raising government revenues to invest in physical infrastructure, health, education, human capacity, and research and development. |
The article also discusses in detail about the mining sector in India.
What is the Status of Mining Sector in India?
The Mining sector in India is one of the core industries of the economy. India is a major producer of numerous metals and minerals.
The total Value of mineral production (excluding atomic and fuel minerals) during 2021-22 has been estimated at Rs. 2,11,857 crore. There has also been an increase in the Index of mineral production, which suggests robust increase in the mineral mining activities in India.
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Mines in India
The economic reforms of 1991 and the National Mining Policy of 1993 have both contributed to the expansion of the mining industry in India.
India produces as many as 95 minerals, which includes 4 fuel, 10 metallic, 23 non-metallic, 3 atomic and 55 minor minerals (including building and other materials). Status of some of the major mined minerals in India are the following-
| Coal Production | India is the second largest producer of coal. The All India production of coal stood at 777.31 MT (P) in 2021-22. Coal India Limited, a PSU engaged in the extraction of coal, is the world’s largest coal producer today. |
| Iron Ore Production | India is among one of the largest iron ore producers in the world. National Mineral Development Corporation (NMDC) is among one of the largest iron ore producer in India. |
| Major Minerals Extraction | India is one of the largest producers of chromium, bauxite, zinc, manganese, lead |
| Non Metallic Minerals Extraction | India is one of the largest producers of limestone, phosphorite, magnesite, graphite etc.. |
Mineral Distribution in India
Share of States in Mineral Production
What is the Significance of mining Sector in India?
1. Economic Contribution- The mining sector contributes approximately 2.2-2.5% to India’s GDP and is a significant driver of economic growth. It fuels the growth of industries like infrastructure and automobiles, leading to increased demand for power and steel.
2. Job Creation- Mining generates more employment compared to other sectors. According to the 12th Five Year Plan, mining sector creates 13 times more jobs than agriculture and six times more than manufacturing per percentage point of economic growth.
3. Economic Diversification and Strategic Global Positioning- Investment in the mining sector diversifies India’s economy, reducing reliance on traditional sectors like agriculture. By entering the global mining race, India can position itself as a key player in the critical minerals market.
4. Support for Electric Vehicle Industries- Mining critical minerals like lithium aids the burgeoning electric vehicle industry, which is crucial for the transition from oil to electric mobility.
5. Increase in the FDI and FPI inflows- The allocation of mines to the private players enhance the possibility of huge FDI and FPI investment in the Indian Economy. Further, the increase in mining activities in India reduce the import bill of the Indian economy and reduce the Current Account Deficit.
6. For the development of Renewable Energy Sector- Minerals such as aluminium and copper are crucial for the development of solar power and wind power sector equipments. These will help India in achieving its Panchamrit goals.
What initiatives have been taken by the Govt to increase the contribution of Mining Sector in India?
| Post liberalisation Policy shift to auction based allocations | National Mineral Policy of 1993 paved the way for private investment for mineral exploration in India. However, exploration permits in India were under the First Come First Serve (FCFS) system. Objections were raised by SC regarding FCFS system as it held it to be susceptible to manipulation, favouritism and misuse. 2015 Amendment to the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) replaced the FCFS basis of mineral allocation with auctions. |
| MMDR Amendment Act of 2015 | The act introduced Mineral Concessions Grant through auctions to bring transparency and remove discretion; The District Mineral Foundation (DMF) to address the longtime grievance of the people affected by mining; and the National Mineral Exploration Trust (NMET) for incentivizing regional and detailed exploration to fill the gaps in exploration in the country. |
| National Mineral Exploration Policy 2019 | It encourages the private sector to take up exploration, on a revenue sharing model, transfer of mining leases and creation of dedicated mineral corridors. It also aims to develop a long term import-export policy for mineral and harmonise taxes, levies, and royalty with the world benchmarks. |
| FDI up to 100% under the automatic route | Mining and exploration of metal and non-metal ores including diamond, gold, silver, and precious ores. Coal and Lignite mining for captive consumption by power projects, iron and steel cement units. |
| Minerals Security Partnership (MSP) | India joined Minerals Security Partnership (MSP) as its 14th member. It is a US-led alliance launched in June 2022. The elite critical minerals club is also known as the ‘Critical Minerals Alliance’. |
| Critical Minerals Mission | Critical Minerals mission has been announced by the Government for the development of critical minerals capability of the country. |
Read More- Lithium Reserves in India
What are the Challenges in the Mining sector in India?
1. High Import Dependency of critical minerals- India heavily relies on imports for many critical minerals, such as lithium, cobalt, and rare earth elements. For ex- India imported worth $22.15 million in 2021-22.
2. Government-Led Exploration- The majority of exploration projects are carried out by government agencies like the Geological Survey of India and PSUs, with minimal private sector involvement, leading to inefficiencies.
3. Regulatory Challenges: The Mines and Minerals (Development and Regulation) Act despite several amendments in 1957, in 2015, 2021 and 2023, has not fully liberalized the mining sector for private investment.
4. Low cost to benefit on Exploration Risks- Exploration of minerals is a high-risk venture, requiring specialized, time-intensive operations. For instance, aerial surveys and geological mapping are costly and often yield less than 1% commercially viable mines. Hence, the private sector miners in India do not participate with full vigour.
5. Impact of Global Events– Global events, such as the Russian invasion of Ukraine, significantly affect India’s mineral supply chains, demonstrating vulnerability to external shocks.
6. Environmental Concerns- Mining activities can be harmful to the environment, necessitating a balance between ecological protection and mining. For ex- Damodar river has been severely polluted by coal mining.
7. Displacement and rehabilitation issues- The mining projects are often associated with the Human Rights violations in the form of mine-related deaths, inadequate rehabilitation, and developmental steps, etc. For ex- Massive local protests against mining in Niyamgiri Hills of Odisha, POSCO in Odisha, Sterlite protest in T.N.
8. Bureaucratic and Judicial Hindrances- Judicial interventions and bureaucratic hurdles lead to long delay and losses for investors. For ex- SC imposed a heavy penalty on illegal mining without green clearances in Andhra
Pradesh, Telangana, Karnataka, and Odisha in 2017.
9. Safety and collapse concerns- Mining also puts the lives of miners at risk due to the rudimentary ways adopted and the absence of adequate safety gear and protocols. For ex- Mine related accidents at Ksan coal mine in Meghalaya-Jaintia Hills (2018), Chasnala near Dhanbad in 1975.
What should be the way forward?
1. Increase Exploration- Expand exploration beyond the current 10% of India’s landmass to uncover more mineral resources.
2. Strengthen Mining Regulations and strict implementation- There is a need for robust environmental, labor, and land laws to regulate mining and prevent exploitation. Stringent implementation of mining-related rules is needed especially regarding the ban on Rat-Hole and unscientific mining to prevent mine-related accidents.
3. Balance Environmental Concerns- Strive for a middle ground between mining development and ecological conservation.
4. Transparency in allocations- Transparency in block allocations and rule-based order should be established. Technology should be used for a better way of mineral exploration and surveillance systems.
5. Ensure minimal damage to society and environment- Proper environmental impact assessment (EIA) and social impact assessment (SIA) must be conducted before allocating the projects. Proper rehabilitation of the displaced population, the tribal rights need to be respected in accordance with the law.
6. Proper utilisation of DMF- District mineral Fund must be properly utilised to construct physical & social infrastructure for the local population in the process.
7. Adoption of Global best Practices- We must adopt global best practices in operations and ensuring safe working conditions for workers in the mining sector. We must undertake measures to avoid occupational hazards.
| Read More- The Hindu UPSC Syllabus- GS Paper 1 Economic Geography – Distribution of key natural resources across the world (including South Asia and the Indian subcontinent). GS Paper 3 Industrial policy. |
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