Alleged diversion: Centre takes complete control of district mineral funds from states

By: |
July 15, 2021 5:00 AM

The move is seen by many states as yet another bid by the Narendra Modi government to usurp the states' fiscal powers and undermine their constitutionally defined role in governance, so might spark a political storm.

The DMFs are required to use these funds for the welfare of persons and areas affected by mining-related operations, the tribal population being the principal intended beneficiaries. The scheme is called Pradhan Mantri Khanij Kshetra Kalyan Yojana.The DMFs are required to use these funds for the welfare of persons and areas affected by mining-related operations, the tribal population being the principal intended beneficiaries. The scheme is called Pradhan Mantri Khanij Kshetra Kalyan Yojana.

The Centre has taken complete control of the district mineral foundation (DMF) funds, negating states’ right to sanction or approve any expenditure out of the funds accrued from mandatory contribution from mining lease holders.

Since their inception in 2015-16, over Rs 49,400 crore have flown into the DMF funds.

The move is seen by many states as yet another bid by the Narendra Modi government to usurp the states’ fiscal powers and undermine their constitutionally defined role in governance, so might spark a political storm.

In a notification issued on July 12, the ministry of mines said the move was necessitated as “there are instances where a part of the funds of the DMF are being transferred to the treasury/consolidated fund of the state or state level funds (by whatever name called) or Chief Minister’s Relief Fund or other funds or schemes,” thereby “defeating the very purpose” of the creation of the DMF.

As per the MMDR (Amendment) Act, 2015, state governments must establish DMFs in all districts for the interest and benefits of the persons affected by mining-related operations; lease holders are required to contribute to these not-for-profit foundations as a defined percentage of royalty, in addition to the royalty paid to state governments.

While the sub-section 3 of Section 9(B) of the MMDR Act brought in through the 2015 amendment says, “The composition and functions of the DMF shall be such as may be prescribed by the state government”, an earlier amendment to the Act added a proviso to the sub-section that, “provided that the central government may give directions regarding composition and utilisation of fund by (the DMF)”. However, going a step ahead, the July 12 order said, “No sanction or approval of any expenditure out of the fund of the DMF shall be done at the state level by the state government or any state level agency.” Clearly, the idea is to deprive the states of discretion in the utilisation of DMF funds.

The DMFs are required to use these funds for the welfare of persons and areas affected by mining-related operations, the tribal population being the principal intended beneficiaries. The scheme is called Pradhan Mantri Khanij Kshetra Kalyan Yojana.

The Centre’s unhappiness with the way the states use the DMF kitty or the states being the custodian of these funds came to the fore in March 2020, as finance minister Nirmala Sitharaman suggested, as part of the first tranche of the Atmanirbhar package, that, “We will request the state governments to utilise the funds which are available at the DMF at the district level so that medical testing, medical screening and also providing of health attention will not suffer”. Though she did not allege fund diversion clearly, industry and mines ministry officials were in the know of fund diversion by the states.

The order said, “In fact, such transfer of funds from DMF to state level agency defeats the very purpose of depositing the contribution and setting DMF at district level. Therefore, transfer of any part of the fund of DMF to any state level entity for its utilisation is violation of the provision of section 9B of the Act.”

While the guidelines say that 60% of the DMF funds have to be utilised for ‘high priority sectors’ such as drinking water supply and education, 40% is earmarked for ‘other priority sectors’ such as physical infrastructure, energy and cowshed development.

According to the MMDR Rules, 2015, “every holder of a mining lease or a prospecting licence-cum-mining lease shall, in addition to the royalty, pay to the DMF of the district in which mining operations are carried on, an amount at the rate of 10% of the royalty in respect of mining leases or prospecting licence cum-mining lease granted on or after January 12, 2015, and 30% of the royalty in respect of mining leases granted before January 12, 2015”.

According to mines ministry’s dashboard, total collection under DMF now stands at Rs 49,414 crore out of which Rs 46,489 crore has been sanctioned and Rs 23,751 crore has been spent on various projects.

The DMF fund collections have been the highest in mineral-rich Odisha (Rs 13,336 crore), followed by Chhattisgarh (Rs 6,995 crore), Jharkhand (Rs 6,856 crore), Rajasthan (Rs 5,008 crore) and Madhya Pradesh (Rs 4,015 crore).

Do you know What is FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Monsoon Review: Sowing picks up, Kharif area deficit narrows
2MG-NREGS: Households with 100 days’ work up a quarter in Q1
3Robust receipts: Centre contains deficit at 18% of FY22BE in Q1