CAG exposes diversion of DMF funds to non-mining areas of Odisha

A CAG audit has flagged diversion of DMF funds, approval violations and project irregularities in Odisha, raising concerns over welfare of mining-affected communities

In the first ever audit of District Mineral Foundation (DMF) funds in Odisha, the Comptroller and Auditor General (CAG) of India has unearthed large-scale irregularities, including violation of statutory approval processes and diversion of funds to non-mining areas during 2014-15 and 2023-24, undermining the core objective of welfare of mining-affected communities.

 

Odisha leads India in DMF collection, having accumulated over ₹31,324 crore by mid-2025 — largely from coal, iron ore, bauxite, and major minerals — since the inception of the fund in March 2015.

 

The draft audit report (reviewed by Business Standard) flagged the systematic bypassing of approval mechanisms, particularly in Keonjhar district, which has collected the highest around ₹13,154.67 crore of DMF funds in the country. The comprehensive audit report is expected to be tabled in the next session of the Assembly.

   

The inspection of records showed that 1,730 projects worth ₹2,984.28 crore were implemented in the scheduled areas in Keonjhar district without the approval of Gram Sabhas, which are legally mandated to vet such projects sanctioned under DMF.

 

“While 2,512 projects worth ₹12,441.73 crore were formally approved by the Board of Trustees (BoT) and Executive Committee (EC), the then collector approved 3,269 projects worth ₹9,733.37 crore, leading to 757 projects (23 per cent) being taken up without mandatory approval from competent authorities. In many cases, post-facto approvals were granted after delays of up to two years, effectively diluting the purpose of decentralised governance,” the draft report stated.

 

The audit said projects worth ₹17,926.79 crore were sanctioned between 2015-16 and 2023-24 in Sundargarh and Keonjhar districts. However, ₹983.32 crore was spent on 9,739 projects in 976 villages that were neither directly nor indirectly affected by mining, even as no projects were implemented in 488 directly affected and 96 indirectly affected villages. The audit found instances where even severely impacted villages remained untouched by DMF interventions despite substantial fund availability.

 

This diversion was, however, attributed to weak planning processes, including non-submission of project proposals through administrative departments, resulting in implementation of projects outside the legally defined mining-affected areas in violation of Odisha DMF Rules and the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) guidelines.

 

Similar irregularities were observed in Sundargarh district, where projects worth ₹102.71 crore were executed without BoT approval, and proposals approved by Gram Sabhas were ignored, while other projects were taken up without such consent. The audit found that this approach by the districts reflected a pattern where institutional processes were overridden, often citing urgency or “public interest” but without adherence to statutory provisions.

 

The CAG also found skewed allocation of funds away from directly affected areas. Across six test-checked districts, ₹20,947.52 crore was sanctioned for over 17,000 projects and ₹10,104.28 crore was utilised. But utilisation patterns deviated from prescribed norms. In Jajpur, 43.54 per cent of funds were spent in indirectly affected areas, exceeding the permissible 40 per cent cap, while only 36.6 per cent was spent in directly affected areas, far below the mandated 60 per cent.

 

In Keonjhar and Sundergarh, funds were diverted into an undefined category termed “common affected areas”, accounting for 15 per cent and 18.43 per cent of sanctioned funds, respectively. The audit said this masked the actual allocation pattern as the category was not recognised under DMF rules.

 

Apart from the allocation issues, the audit found implementation inefficiencies that further weakened outcomes. In Jajpur, a ₹2.54 crore skill development programme failed to meet its objective, with only 38 per cent placement achieved against the mandated 70 per cent, while in Keonjhar, ₹5.24 crore spent on training yielded similar suboptimal employment outcomes, rendering the expenditure largely unfruitful.

 

“Construction of 100-seated boys/girls hostel buildings at eight Adarsh Vidyalays was approved by DMF trust in Keonjhar in 2016. Accordingly, ₹9.17 crore was spent. The projects, during audit, were found to be non-functional and remained idle due to non-deployment of required manpower/infrastructure, and furniture worth ₹2.09 crore like cots, beds, tables, and almirahs were also dumped in the school buildings, resulting in idle expenditure of ₹11.26 crore,” the report added.

 

The CAG also found diversion of over ₹136 crore of DMF funds for construction of an international hockey stadium in Rourkela. “The state government had approved an international hockey stadium to be executed through IDCO at a cost of ₹404.74 crore, and the expenditure was to be shared from DMF funds. The DMF trust Sundargarh released ₹136.77 crore during January-September 2022. A hockey stadium cannot be categorised as a common infrastructure as cited by the government, as it is being used for international matches,” the report stated.

 

Similarly, the DMF trusts released ₹168.15 crore — ₹138.77 crore in Keonjhar, ₹17.03 crore in Jajpur, and ₹12.35 crore in Mayurbhanj — for purchasing furniture for schools. However, expenditure on furniture for supply to schools and colleges of the three districts was not permissible as it contravened the provisions of the PMKKKY guidelines and Odisha DMF Rules.

 

Some districts also incurred excess expenditure on doctors’ remuneration over the state government’s prescribed rate. The DMF trusts of Sundargarh and Keonjhar had engaged 98 dentists with the remuneration of ₹60,000 to ₹1.5 lakh per month and 83 specialists in the remuneration range of ₹1 lakh to ₹3 lakh per month on contract to fill the existing vacancies of different health institutions. The audit indicated that there was excess payment of ₹43.79 crore in comparison to the government-prescribed rates due to random fixation of remuneration.