On minerals and mines, strike a new federal balance

Source: The post “On minerals and mines, strike a new federal balance” has been created based on “On minerals and mines, strike a new federal balance” published in “Indian Express” on 19th August 2026.

UPSC Syllabus: GS-3- Economy

Context: The mining sector is vital for India’s economic growth and infrastructure development. The Mines and Minerals (Development and Regulation) Amendment Bill, 2026 seeks to restrict states’ powers to impose levies on mineral rights and mineral-bearing lands, with the objective of creating greater certainty and encouraging investment.

Key provisions and rationale

1. Greater predictability: The amendments aim to provide a more uniform and predictable taxation framework for the mining sector.
2. Rationalisation of levies: States currently impose several taxes, charges, fees and levies, including royalty and auction premiums, with rates varying across states. Rationalisation could reduce uncertainty for investors.
3. Reducing the tax burden: According to the FIMI-EY report, India’s effective tax rate is above 50 per cent of revenues, compared with around 35–40 per cent in other countries. Rationalisation could therefore improve India’s investment attractiveness.
4. Controlling infrastructure costs: The Centre argues that excessive mineral levies can increase the cost of minerals and consequently raise infrastructure costs.
5. Supporting critical minerals: A predictable regulatory framework can support the objectives of the Union government’s Critical Mineral Mission and strengthen domestic mineral security.

Concerns and challenges

1. Impact on state revenues: Mineral-rich states such as Odisha, Jharkhand and Chhattisgarh depend significantly on mining-related revenue as a source of non-tax revenue.
2. Fiscal federalism: The amendments have raised concerns about the erosion of states’ taxation powers and the balance between Centre and states.
3. Supreme Court ruling: The amendments follow the Supreme Court’s recognition of states’ power to impose taxes on mineral rights and mineral-bearing lands, along with permission to recover arrears dating back to April 1, 2005.
4. Revenue mobilisation by states: Following the judgment, some states sought additional revenues through mineral-bearing land taxes. For example, Jharkhand imposed a tax on iron ore, while Tamil Nadu introduced a tax on limestone.
5. Centre-state friction: Although the government maintains that states will continue to receive the overwhelming share of mining revenue, concerns regarding reduced fiscal autonomy need to be addressed.

Way Forward

1. The Centre and states should develop a consultative and transparent framework for rationalising mining taxes and royalties.
2. The framework should balance investment competitiveness with the legitimate revenue needs of mineral-rich states.
3. Greater uniformity in taxation should be accompanied by clear revenue-sharing mechanisms to protect fiscal federalism.
4. Predictable taxation, regulatory stability and efficient mining governance should be pursued together to attract investment.

Conclusion: The rationalisation of mining taxes and royalties can make India’s mining sector more competitive and investment-friendly. However, its success will depend on maintaining a careful balance between economic efficiency and cooperative fiscal federalism, ensuring that greater predictability for investors does not come at the cost of legitimate state revenues and autonomy.

Question: The Mines and Minerals (Development and Regulation) Amendment Bill, 2026 seeks to rationalise mining taxation and create a more predictable investment environment. Discuss its implications for investment, state revenues and fiscal federalism.

Source: Indian Express