The MMDR Amendment and the Future of Mining in India
| AUTHOR | Sarthak Pradhan, Shobhankita Reddy |
| DATE | August 21, 2026 |
| CATEGORIES | Critical Minerals Taxes Federalism |
Last week, the Mines and Minerals Development and Regulation (MMDR) Amendment Act, 2026 was passed. The Act seeks to reverse the Supreme Court’s nine-judge bench ruling in Mineral Area Development Authority v. Steel Authority of India (MADA), decided in 2024. The 2024 MADA judgement held that royalty paid by mining companies is not a tax, overturning a previous 1989 judgement. Additionally, it held that State legislatures have absolute and exclusive authority to levy tax on mineral rights, subject only to a law enacted by Parliament. Further, it ruled that mineral-bearing land falls into the category of land, and that it is within the domain of States to tax these lands without any encroachment by Parliament.
The following key features of the MMDR Act merit discussion -
- It invalidates any uncollected retrospective State taxation on mining companies since the 2024 Supreme Court judgement from the date of its commencement. It requires any tax, cess, or other such levy to be stipulated under conditions guided by the Union government.
- The act states that any retrospective collection by the States so far remains with them and is not due for a refund to mining companies. It empowers the Union government to regulate the land underlying the minerals, reversing the Supreme Court judgement. More broadly, the amendment seeks to simplify mining taxation in India.
Mining in India seems to have a structure that resembles India’s pre-GST indirect tax architecture, i.e. multiple production-stage levies (royalty, DMF contribution, NMEDT contribution, state cess, auction premium, dead rent, transit fee, GST, etc), with their own base, own administering authority, own compliance process. This creates a cascading effect that raises the effective tax rate. The MMDR bill attempts to reduce this, thereby lowering compliance and distortion costs.
The Laffer Curve shows that maximum revenue from a tax can be achieved at a specific tax rate, i.e., the optimum tax rate. Any rate higher or lower than this reduces the revenues. The current tax rates may be beyond the revenue-maximising range. If there were scope to increase revenue further, we would expect more exploration, more investment, etc. However, exploration remains minimal, output is flat, and reliance on imports is increasing. By reducing the scope for levying additional taxes, the bill aims to shift the sector to the revenue-maximising side.
Many of India’s major minerals are internationally price-linked commodities (iron ore, bauxite, base metals, etc.). Given elastic demand and inelastic supply (i.e., miners cannot simply shift their investments elsewhere), domestic consumers of these minerals can switch to cheaper imports rather than buy from high-cost Indian miners. Thus, the heavy tax burden falls disproportionately on the domestic mining companies. This explains the lack of investment in this sector.
That said, the sector’s growth depends on factors beyond tax rates. Given the market failures associated with mining (i.e., environmental externalities, information asymmetry), governments typically intervene through regulation. However, these regulations can be a source of government failure. The set of individually justified interventions (forest clearance, tribal consent, clearances from state mining departments, explosive-use clearance, etc.) can compound into extremely high transaction costs. These regulations take anywhere between 4 and 5 years in India, compared to 6 months in leading mining economies. Parallel, time-bound clearance can solve this problem while addressing externalities.
Reducing states’ scope to raise revenue from minerals in their jurisdiction is a genuine source of concern for them. The seemingly unilateral Union override can sow seeds of discontent between the Union and the states. More disputes will end up in courts, raising unpredictability in the sector and further dampening investment. A way out could be a GST-Council-style Minerals Council that enables negotiation between the Union and states in a harmonised manner. A stable, predictable tax architecture reduces uncertainty, increasing investment and raising revenue for the states as well as corporate tax revenue for the Union.
By reducing the scope for taxing mineral land, the bill reduces states’ fiscal capacity to mitigate mining externalities. However, a mechanism already exists: the District Mineral Foundation. The DMF contribution from mining companies is meant to mitigate the negative effects of mining, improve the welfare of communities affected by mining, and ensure mining regions benefit from mineral extraction. However, recent CAG reports point to instances where DMF money was spent on villages not affected by mining, while no projects were implemented in some villages affected by mining. CAG audits in Chhattisgarh found poor planning, unfruitful expenditure and money diversion. Ringfencing the money geographically, ensuring greater control over fund utilisation by the affected communities, outcome-based spending, and a mining community transition fund that helps mitigate the long-term intergenerational impact of mining closure could be the way forward.
Further, the Union Government should prioritise the allocation of public goods such as geoscience data and the financing of merit goods such as infrastructure. Currently, less than 20% of India’s geological potential has been explored.
This can de-risk private exploration and incentivise it. Ultimately, the objective should be to create a mining regime that encourages investment and production, ensures that states have a predictable source of growing revenue, ensures mining communities benefit from mineral extraction, and allows governments to manage the externalities effectively. A stable and predictable tax regime, better-targeted DMF spending, and greater provision of public goods can help achieve this while expanding the revenue base for both States and the Union.