The Sultanate’s Surcharge: MMDR Amendment shifts wealth from states to miners

The new Mines and Minerals (Development and Regulation) Amendment Bill 2026 was passed by Parliament on Thursday. The Statement of Objects and Reasons cites increased tax burdens, unpredictability and non-uniformity of mineral taxation across states, warning that these may hamper production, necessitate imports and slow economic growth.

But behind the pretext of ensuring 'uniformity' lies a bid to neutralise a Supreme Court ruling, protect mining companies, and strip mineral-rich states of constitutional fiscal powers - at the expense of federalism and future generations.

The immediate provocation is the 9-member constitution bench judgment in 'Mineral Area Development Authority v. Steel Authority of India' on July 25, 2024, which ruled that states have authority to impose taxes on mineral-bearing lands and mineral rights under the state list. The court directed payment of taxes due from April 1, 2005, in instalments over 12 yrs, without interest or penalties. During the hearings, GoI informed the court that the unpaid state taxes were so large that they exceeded the net worth of some mining navratnas and maharatnas. These amounts are payable to states as taxes, not to private parties.


The response has been legislation that effectively removes this state-taxing power. It also rewards those who didn't pay after the judgment by declaring such amounts no longer recoverable.

National Mineral Policy 2019 states that 'natural resources, including minerals, are a shared inheritance' and that the state is trustee on behalf of the people, ensuring that future generations also receive the benefit of that inheritance. It also says state governments will endeavour to ensure that the full value of extracted minerals is received by the state.

Auctions of major mineral leases have been fairly successful. In Goa, the weighted average winning bid in 18 iron ore lease auctions is 123% of the mine-gate price, including 15% royalty.

Un-auctioned 'grandfather' leases, whether held by government companies or private parties before 2015, pay only royalty, and in some cases a premium far below what an auction would fetch. Older leases, therefore, enjoy a significant cost advantage over auctioned leases. One way for states to bring these leases towards parity is to impose mineral-rights taxes on such leases.

The argument that state taxes create uncertainty is true of taxation generally. Tax regimes change everywhere. GST is one example. MMDR Amendment Act 2025 itself increased lessees' National Mineral Exploration and Development Trust (NMET) contribution by 50%. States, meanwhile, have a fundamental interest in continued mining and strong incentives not to destroy an important sector merely to extract higher taxes. It's unlikely they would commit fiscal - and political - hara-kiri by imposing unreasonable levies.

So, who benefits from this amendment? Follow the money, and it becomes clear: private mining companies and central PSUs. A tax otherwise payable to a state disappears, or is restricted. That is an economic benefit to a few, and comes at the cost of mining states, and their citizens.

No surprise that mining companies are happy. Economic Survey 2016-17 documented that mining states tend to have lower HDI. This is yet another blow against true equity, clothed as equality. Uniform tax rates across states can actually produce greater inequality.

This is not the first time GoI has used MMDR Act to centralise functions traditionally exercised by states. MMDR Amendment Act 2023 permits the Centre to auction mining leases even where minerals are owned by the state. Such power can override location-specific decisions properly belonging to the mineral-bearing state, including whether a particular block should be mined at all. Clearly, Delhi Sultanate thinks it knows best.

Supreme Court has settled the constitutional allocation of taxing power. Parliament may alter the legal regime prospectively within its own field of competence. What it can't do is treat a constitutional allocation of power as a regulatory inconvenience to be neutralised whenever its fiscal consequences become uncomfortable.

The constitutional question, therefore, has not disappeared and is bound to return in litigation: can Parliament, under cover of its legislative power over mines and minerals, substantially reallocate fiscal benefits of mineral resources between Union and states in a manner that undermines the federal structure? Federalism is part of the Constitution's 'basic structure'. Unless mineral-bearing states fight back, this steady denuding of their powers will leave them increasingly helpless before further encroachments.

There was another way. If the Centre truly believes in federalism, it could have called a meeting to discuss tax uncertainty and its economic impact. National Mineral Policy 2019 itself provides for an inter-ministerial authority under ministry of mines, with representation from central ministries and states, to examine issues including royalties and dead rent.

Instead of using that mechanism to take everyone along, the Centre preferred issuing a firmaan.