Mining Amendment is Unfair to States

UPSC Syllabus: Gs Paper 2- Issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Introduction

Mining is concentrated in States such as Odisha, Jharkhand, Chhattisgarh and Karnataka, which bear both the benefits and costs of extraction. The MMDR Amendment Act, 2026 seeks predictable taxation and greater mining investment by restricting State levies on mineral rights and mineral-bearing land. The central concern is whether investment certainty should reduce the fiscal space and constitutional powers of resource-rich States.

Why the Mining Amendment Was Introduced

1. Predictable tax environment: The Union government seeks a stable taxation framework because mining projects require huge investment and may operate for decades.
2. Preventing excessive levies: Multiple State levies, different rates and taxes introduced after operations begin can increase costs and create uncertainty for mining projects.
3. Encouraging investment: Greater tax certainty is intended to encourage long-term investment and prevent mining projects from becoming commercially unviable.
4. Supporting mineral supply: Stable mining investment can encourage exploration and domestic production and may reduce excessive dependence on imports.
5. Long project life: Mining deposits cannot be relocated when tax rules change, making stable financial conditions important for projects lasting decades.
6. Industrial competitiveness: The Union argues that fragmented State levies raise mineral costs and can weaken the competitiveness of Indian mining.
7. Energy transition needs: Renewable energy, electric mobility, battery storage and advanced manufacturing will require dependable mineral supplies for future development.

Key Changes Under the MMDR Amendment Act, 2026

1. Mineral-bearing land under Union regulation: Section 2 has been expanded to bring mineral-bearing land within the field of Union regulation, while Section 3 gives the term a statutory meaning.
2. Restriction on State levies: New Section 9D restricts State Governments from imposing taxes, cesses or other levies on mineral rights and mineral-bearing land except under conditions prescribed by the Centre.
3. Central rule-making power: Section 13 has been amended to provide the necessary rule-making authority for implementing the new framework.
4. Greater central regulation: Taken together, these changes reduce the space available to States for exercising fiscal powers over mineral resources and move the law towards a more centrally regulated system.

Major Concerns Related to the MMDR Amendment Act, 2026

1. Constitutional Concerns

• Entry 50 and mineral taxation: States have constitutional power to tax mineral rights, subject to limitations imposed by Parliament.
• Entry 49 and land taxation: States separately possess the power to tax lands and buildings, raising questions about restrictions on mineral-bearing land.

2. Federal Concerns

• Reduced fiscal autonomy: Section 9D limits States’ ability to create new taxes, cesses and levies related to minerals.
• Mining-related expenditure: Resource-rich States and mining districts bear costs such as displacement, environmental damage and infrastructure pressure.
• Restricted future revenue options: Existing royalties and other core revenues remain, but States may lose an important fiscal instrument for raising future resources from mineral wealth.
• Centre-State balance: The amendment raises a broader question about whether States can retain adequate financial capacity for responsibilities linked to mineral extraction.

3. Judicial Concerns

• 2024 Supreme Court judgment: A nine-judge Bench held that royalty is not a tax and recognised State powers over mineral taxation and mineral-bearing land.
• Possible tension with the judgment: Section 9D’s restriction on mineral-bearing land raises questions about the extent to which Parliament can restrict the State’s separate land-taxation power.

4. Other Concerns

• Past unpaid dues: The amendment also extinguishes certain unpaid or unrecovered dues from earlier State levies, adding another concern for States over their revenue claims.
• Balance between uniformity and autonomy: Greater tax uniformity may improve predictability, but excessive central control can narrow the fiscal choices available to States.

Way Forward

1. Balance investment with State autonomy: Ensure greater tax predictability for long-term mining investment without unnecessarily removing the fiscal choices available to resource-rich States.
2. Strengthen Centre-State consultation: Make States part of policy design when changes affect natural resources, taxation powers and revenues, rather than limiting consultation to the implementation stage.
3. Ensure regional development: A meaningful share of the value generated from mining should support infrastructure, education, livelihoods and stronger local communities in mining regions.
4. Promote sustainable extraction: Mining policy should combine mineral production with ecological restoration, environmental safety and responsible resource use, since minerals are exhaustible.
5. Support industrial development: Greater certainty in mining should help secure minerals needed for steel, manufacturing, infrastructure, renewable energy, electric mobility and battery storage.
6. Reduce import dependence: Encourage exploration and domestic mineral production so that India can meet growing mineral requirements without excessive dependence on imports.
7. Protect future generations: The economic value created from exhaustible minerals should leave behind permanent development benefits rather than only short-term gains from extraction.

Conclusion

The MMDR Amendment, 2026 aims to improve tax predictability and attract mining investment, but it narrows the fiscal space of States. Since States bear costs of mineral extraction, their constitutional and financial interests require protection. A balanced framework should support mineral security and industrial growth while preserving State fiscal capacity and ensuring mining regions receive lasting benefits.

Question for practice:

Evaluate whether the MMDR Amendment Act, 2026 strikes a fair balance between mining investment and the fiscal autonomy of States.

Source: The Hindu