Mining an opportunity: New Bill prioritises business over states' rights

Amendments passed by Parliament to the Mines and Minerals (Development and Regulation) (MMDR) Act earlier this week reflect the Centre’s objective of creating a predictable environment for doing business. In the process, it may have weakened fiscal federalism and impinged on states’ entitlements. The amendment curbs states’ rights to impose taxes, cess or other levies on mineral rights or mineral-bearing lands. The new law also has a retrospective component that invalidates levies which were imposed by the states and have not been deposited or recovered before this amendment. At the same time, levies already deposited with or recovered by the state do not have to be refunded. In effect, the Act rewards defaulters and penalises compliant companies.   

The amendment enables the Centre to confer upon itself the sole authority to control mines and mineral development in the country, though the Constitution grants taxing and regulatory powers over this sector to both the Centre and the states. Criticism of the Bill by states has started. Kerala Chief Minister V D Satheesan, for instance, has called it an encroachment on states’ constitutional powers. This Bill contradicts a 2024 ruling of a nine-judge Supreme Court Bench. The apex court had declared that states had the powers to levy tax on mineral rights. It also allowed states to recover dues on mineral rights dating back to April 1, 2005. Crucially, however, the court stated that states’ powers to tax mineral rights could be limited by an Act of Parliament, which might include a prohibition. This is the clause that the Centre has chosen to act on. In the statement of objects and reasons for the Bill, the Centre said differing state-level taxes and levies created an unpredictable and discouraging environment for the mining industry. The amendments were intended to provide certainty, stability and predictability. 

Certainly, at a time of geopolitical pressures on global supply chains and an intensified race to access strategic minerals, it is vital for India to develop a robust mining industry for lithium, cobalt, graphite and other materials essential for electric vehicles, battery storage, semiconductors and defence manufacturing. Some provisions will undoubtedly benefit investors. For instance, one mining lease can cover multiple minerals, allowing the mine-holder to apply for inclusion in an existing lease every time a new mineral deposit is discovered. For strategic minerals, leaseholders will not be required to pay an additional amount for their inclusion in an existing lease. The cap on selling minerals produced from captive mines has also been lifted, giving such mine-holders greater freedom to decide resource utilisation. The Bill also proposes setting up an electronic exchange for minerals and metals to improve price discovery. The activities of the National Mineral Exploration Trust (NMET) have also been expanded beyond exploration to mine development. The NMET was established in 2015 as a non-profit autonomous body and is funded by contributions from mining and prospecting leaseholders.   

Though prospective miners will welcome this law, the question is whether depriving mineral-rich states such as Jharkhand, Odisha, Andhra Pradesh, Tamil Nadu, Karnataka, Madhya Pradesh and Rajasthan of a critical revenue source is warranted. In states such as Jharkhand and Odisha, for instance, such receipts account for 75-80 per cent of these states’ own non-tax revenues. In fact, while business predictability is the law’s objective, whether miners can actually operate in lands from which states derive little benefit remains a practical question yet to be tested.