On mines and minerals, Centre-state compromise is in tatters

The recent passage of the Mines and Minerals (Development and Regulation) Amendment Act, 2026 in India has sparked controversy over its impact on state governments' fiscal autonomy. This legislation effectively transfers control of mineral and mineral land taxation from state governments to the central government, potentially reducing a significant portion of their annual revenues.

The MMDR Act, enacted in the 1950s, was originally designed to facilitate economic growth through coal-based industrialisation. However, successive amendments have chipped away at state governments' rights to exploit major minerals within their boundaries, leaving them with limited control over these resources. The new amendment represents a significant escalation of this trend, effectively nullifying any remaining compromise between the central and state governments regarding mineral taxation.

This development not only has fiscal implications but also raises concerns about the constitutionality of the legislation, given a 2024 Supreme Court ruling on states' rights over mineral taxation. Critics argue that the Act is motivated by corporate interests rather than genuine concerns about ease of doing business, and that the lack of parliamentary scrutiny over its passage highlights the influence of lobbying on policy decisions.

The decision to involve bureaucrats and technocrats in defending the law further underscores the growing disconnect between the Union government and state governments. As India grapples with the consequences of this fiscal shift, it may be worth looking to China's experience with centralisation of fiscal management. While Beijing dramatically increased its share of overall taxes in 1994, it also allowed provinces financial innovation through direct access to capital markets, fostering regional models of growth.

India's current approach of keeping all fiscal escape valves closed may be exacerbating pressures on states and hindering balanced development.