New mining law will end diversion of states' benefits

The proposed mining law amendment will end the current practice of diversion of benefits meant for people affected by projects in their areas, in the form of royalties, by state governments to their own coffers. With this, the government wants to ensure the new law offers more than a mere commitment of a part of miners’ profits for project-affected families.

Currently, Rs 4,000 crore is collected by states every year as royalty from mining companies, but it does not reach the districts where mining operations are undertaken. As a solution, the government is setting up a dedicated revenue stream flowing back to the locals in every district.

“Royalty collection does not get channelised to the district it is meant for. It goes to the state government’s coffers. It becomes a part of the state government’s budget. That is why we feel the need for a separate fund which goes to the District Mineral Foundation,” Mining Secretary S Vijay Kumar told Business Standard. Adding: “The idea is to create a separate revenue stream for locals which is currently not there.”

Under the proposed changes to the Mines and Minerals Development and Regulation (MMDR) Act, state governments will create separate mineral funds in every district where mining leases will be granted.

This fund will be channelised for financial assistance to the District Mineral Foundation (DMF), a special body to oversee the fund. The DMF, in turn, will make payments of monetary benefits on a monthly or quarterly basis to the families affected by mining.

Royalty is paid by a mining company to the state as the owner of the mineral. It is a major revenue accrual to the state government, forming a part of the non-tax receipts of states, which account for around four per cent of the Gross Domestic Product.

The overall mineral royalty collection in India increased 72 per cent from Rs 2,319 crore in 2008-09 to Rs 3,997 crore in 2009-10 after royalty rates were revised in August 2009 with a shift from specific rates to ad valorem rates for most minerals.

The DMF, in which a part of miners’ profits will be collected for compensation to locals, will be a trust set up by the state government. It will act as a non-profit corporate body set up under the MMDR Act.

The DMF will be managed by a governing council chaired by the district magistrate. The district mining officer will act as the secretary of the council. The council will approve the disbursal of the compensation amount. The DMF will maintain a balance sheet of the funds available and its accounts will be audited in a manner prescribed by the state government in consultation with the Comptroller and Auditor General of India.