Reasons for Centre Undertaking Complete Control over district mineral foundation (DMF) Funds from States.

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Original inhabitants of various mineral-rich States, especially the tribal population, have been immensely affected by mining activities over the years. Mining has impacted their lives and livelihoods and also encroached their lands.

It is quite evident a fact that mining activities devastate the less developed and remote areas of India. Since the Scheduled Tribes are the main victims, Schedule V and Schedule VI of the Constitution, especially section 244, comes into play for their protection and upliftment.

Mines and Minerals (Development and Regulation) Amendment Act, 2015 and the District Mineral Foundations

 The Central Government through an amendment to Mines and Minerals (Development and Regulation) Act, 1957 (referred to as the “Act” hereinafter) in 2015 tried to compensate by forming a fund for the elevation and development of these areas. A system of auctions for the allocation of mining licenses was introduced. The licenses would be valid for fifty years, and there would be no renewal but only re-auction of such licenses.

A percentage of revenue from all of the mines was fixed in order to fund the statutory bodies called the District Mineral Foundations (DMFs) established by notification by the respective State Governments. Such funds would be allocated for the development of the areas and people affected by mining activities. Every mining leaseholder would pay up to one-third of the royalty to the DMFs. The rates would be prescribed by the Central Government. The ultimate goal was to ensure that the mineral wealth of these regions improve the standard of living of the inhabitants.

Pradhan Mantri Khanij Kshetra Kalyan Yojna

In order to achieve the aforesaid goal, a project called Pradhan Mantri Khanij Kshetra Kalyan Yojna (PMKKKY) was launched. It had the following objectives—

• Implementation of welfare programs in mining-affected areas.

• Reducing as far as possible the adverse impacts of mining activities on not only the social and economic conditions or the health of the people but also the environment.

• Protection of the livelihoods of the people while ensuring sustainable development.

The project first identifies the areas and population affected by mining to be covered indeed the PMKKKY and divides them according to priority.

The total funds are divided in the ratio of 6:4. 60% of the funds are utilized in high-priority areas like drinking water supply, protection of the environment, prevention of pollution, healthcare, education, skill development, etc.

The rest 40% are utilized under the other priority areas like infrastructural development, energy, irrigation, etc.

Power of the State Governments

Control on the DMFs was vested on the State Governments, especially the Governor, by sub-section 4 of section 15 and section 15A read with Section 9B of the Mines and Minerals (Development and Regulation) Act, 1957. The rules for functioning and those regarding the composition were also to be declared by the State Governments. The state also was in charge of conduction of auctions of mineral concessions and the licenses.  

To date, a total of Rs. 49,414 crores has been collected, Odisha being the highest contributor (Rs. 13,336 crore) out of which only Rs. 23,751 has been spent on various projects.

A Shift In Powers

By a notification in July 2021, the Central Government ceased the powers given to the State Governments. It came in the wake of alleged fund diversion by the State governments.  Such a move became necessary because according to the Ministry of Mines, the DMF funds were being transferred to treasury or consolidated funds of State or State level funds or Chief Minister’s Relief fund.

 In March 2020 the Finance Ministry requested the States to use these funds at the District levels for medical purposes during the pandemic. However, this year the events took a drastic turn as the Centre took total control of the funds. This was marked by many as usurping of the fiscal powers given to the States by the Constitution.

Union Coal and Mines Minister have negated the claim. According to him, there was no infringement of power intended on part of the Centre. There has been a sluggish progress on the utilisation of funds, with not even half of it having been utilised. The speed of auction has also been slow, with only seven minefields being auctioned out of the one hundred and forty three unlocked in the past six years. The Centre has but only directed the States with regards to spending of the funds.

What does the Order actually say?

Sub-section (3) of section 9B of the Act already provided that the Central Government may give direction regarding the composition and utilization of DMF funds.

However, in light of the present circumstances where the Centre has noticed that a part of such funds is being transferred to the State funds, it is of the view that the very purpose of setting the funds at district levels has been defeated and there has been  a violation of provisions of the Act.

Thus, exercising its powers under section 9B(3), the Central Government directed—

• The States have to strictly adhere to the provisions of section 9B while utilizing the DMF funds.

• The funds under no circumstances should be transferred to other funds and schemes.

• The State Governments and other State Level agencies are forbidden to sanction or approve any expenditure out of the District Mineral Foundations funds.

A Concluding note- was such a direction justified?

While the first two directions, viz. the strict adherence to section 9B and non-diversion of funds can be said to be legally justified, the question remains regarding the third direction. According to the MMDR (Amendment) Act, 2015, it is the States that shall establish the District Mineral Foundations in the first place. The Constitution grants separation of powers between the Union and the States. State Governments are deemed to have more knowledge about the local demands and other local conditions. True, that the funds have suffered dilatory implementation under the State Governments. Nevertheless, a structural flaw in the fiscal responsibility of the States and the Centre cannot be entertained through this order that directs total control of DMF funds by the Union Government.










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