A letter vs spirit dilemma

The new MMDR bill protects the mining industry, but it must not overlook underlying concerns of welfare and fiscal federalism

The Lok Sabha passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026, on Wednesday. The legislation essentially overturns a 2024 Supreme Court judgment that allowed states to levy their own taxes on mining and mineral extraction activities.

More often than not, those at the receiving end, such as India’s tribal communities, lack the political and institutional wherewithal to protect their interests or seek just compensation (HT Archive)

The legislation, on the one hand, brings a welcome predictable business environment for companies who undertake such operations. As events in the past few years have shown, mining has emerged as a strategic sector thanks to its critical role in global value chains. Large companies will be hesitant to invest if they face an arbitrary tax regime. This, however, cannot be the entire story; two more aspects must be considered when evaluating the larger impact of the new arrangement.

Mining is a sector with an in-built geographical asymmetry in its costs and benefits. The gains often go to the larger economy and the people and companies within these linkages. The costs, especially environmental destruction and habitat degradation, are disproportionately borne by the communities and regions where mining occurs. More often than not, those at the receiving end, such as India’s tribal communities, lack the political and institutional wherewithal to protect their interests or seek just compensation. Transferring the tax-levying capacity from the state to the central government makes resolving this asymmetry even more difficult.

The second issue is the larger question of states drawing a shorter straw within India’s fiscal federalism architecture following the rollout of the Goods and Services Tax (GST). States have very little fiscal autonomy in levying their own taxes apart from excise, which has seriously curtailed their policymaking space. The central government’s use of legislation to dilute an important judicial victory for the states in a key fiscal federalism dispute only adds to the already existing policy squeeze.

The tensions outlined above — whether to protect India’s ease of doing business or strengthen democratic safeguards by decentralising fiscal powers — are not easy to solve and, by no means, substitutes to each other. This is a classic case of the spirit of the law being more important than the letter. Government and politicians should ensure that the new arrangement does not end up sidelining the concerns of the most marginalised voices in the system on the pretext of safeguarding economic prowess.