Resource Curse Or Federal Imbalance - Coal Mining’s Impact On India’s Resource-Rich States

Author: LawSphereX

Category: General Law

Published: 2026-08-23T20:56:08.612442+00:00

Updated: 2026-08-26T17:09:42.557+00:00

RESOURCE CURSE OR FEDERAL IMBALANCE? COAL

MINING’S IMPACT ON INDIA’S RESOURCE-RICH STATES

Trishla Dubey, Maharashtra National Law University, Nagpur

ABSTRACT

This paper explores the intricate relationship between coal mining, federalism, and economic disparities in India, focusing on the impact of coal mining on the country’s resource-rich states. Coal, a critical resource in India’s energy mix and economic development, is primarily extracted from states that are economically disadvantaged and often lack the infrastructure and governance capacity to manage the environmental and social costs of mining. This paper investigates whether the adverse effects observed in these states are a manifestation of the “resource curse” whereby resource-rich regions experience slower economic growth and development or a result of federal imbalances, where the benefits of coal mining are disproportionately distributed in favour of wealthier states or the central government.

By analysing the allocation of mining royalties, the distribution of environmental and social impacts, and the governance frameworks under India’s federal structure, the paper highlights how coal mining has exacerbated regional inequalities. The research underscores the need for policy reforms that address these imbalances, ensuring that the benefits of coal mining contribute to sustainable development and equitable growth across all states. The findings contribute to the broader discourse on resource governance in federal systems, offering insights that could inform more equitable and sustainable mining practices in India and similar contexts globally. Keywords: coal mining, Indian constitution, federalism, resource curse, environmental degradation

I.

Introduction Coal is the backbone of India’s energy sector accounting for 55% of the country’s energy need. 1 Beyond energy, coal is a significant contributor to the national GDP, generating substantial revenue for both state and central governments through taxes and royalties. 2 It also provides employment to millions, particularly in economically disadvantaged regions, supporting livelihoods and regional development. Coal’s abundant domestic reserves enhance India’s energy security, reducing dependency on imported fuels. Despite the global shift towards renewable energy, coal remains vital for maintaining the stability of India’s energy grid during this transition. However, coal mining in India is a complex issue intertwining federalism, resource politics, and socio-economic impacts.

3 The coal industry has been central to India’s energy policy, but its development has led to conflicts over land rights, displacement, and environmental degradation. Some of the States with the largest coal reserves and highest production are often seen performing poorly against the various parameters of multi-dimensional poverty index. (Fig. 1) Fig. 1- Source: National Multidimensional Poverty Index, NITI Aayog, 2023 * Assistant Professor of Law and Doctoral Candidate at Maharashtra National Law University, Nagpur. 1 Coal-Indian Energy Choice, Ministry of Coal https://coal. nic. in/en/major-statistics/coal-indian-energychoice#:~:text=Coal%20is%20the%20most%20important,in%20the%20last%20four%20decades (last visited on August 02, 2024)

2 Economic significance of the Coal Sector Extends Beyond Energy Production, Ministry of Coal, Press

Inofrmation Bureau (Feb 26, 2024) https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2009196 (last visited on July 10 2024)

3 Lahiri-Dutt, K., ‘The Coal Nation: Histories, Ecologies and Politics of Coal in India’ (2014).

The data pertains to percentage of total population which is multidimensional poor in decreasing order of ranking. Dark blue colour represents situation in 2019-21 and light blue colour represents situation in 2015-16. In terms of coal production and reserves, Jharkhand, Odisha and Chhattisgarh top the list, however, it is evident from the data produced above that the highest population of these states is multidimensionally poor. One reason could be the inadequate sharing for mining proceeds with these states. Consequently, these resource-rich states are now demanding for fairer distribution of mining revenues and greater local governance.

The Mines and Minerals Development and Regulation Amendment Act 2015 aims to address these issues by allocating a portion of mining royalties to affected areas, potentially mitigating the “resource curse” phenomenon observed in some mineral-rich states. However, the effectiveness of these measures in reducing spatial inequalities and improving local livelihoods remains to be seen. II.

Place of Coal in Indian Economy Through royalties, GST, and other levies, the coal industry gives the federal and state governments an annual contribution of more than Rs. 70,000 crore. In areas that produce coal, these monies are essential for promoting infrastructural improvement and socioeconomic growth. The Central and State Governments receive a significant amount of revenue from the extraction of coal; in the fiscal year 2022–2023, royalty receipts totalled Rs. 23,184. 86 Crore. 4 Coal’s overall contribution to the Economy and its central place in the energy matrix are all contributing to an increase in its production ever year in India (Fig. 2) as well as globally. The amount of coal produced worldwide hit a record high of 179 Exo Joules, surpassing the previous record set the year before.

Nearly 80% of global output was produced in the Asia Pacific area, which is mostly centred in four nations: Australia, China, India, and Indonesia. In fact, India's coal usage in 2023 surpassed that of both North America and Europe combined for the first time ever. 5 4 Economic significance of the Coal Sector Extends Beyond Energy Production, Ministry of Coal (26 FEB

2024) https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2009196 (last visited on Sept 05, 2024)

5 Energy Institute Statistical Review of World Energy 2024 p. 5

Fig. 2: Source: Annual Report 23-24, Ministry of Coal, Government of India. Due to this humungous contribution to economy, many countries in the world have given place to coal in their constitution. III.

Tracing the Journey of Constitutionalisation of Mining Across the globe, the initial mining constitutionalisation phase was restricted to certain provisions in the constitutions on land and property ownership. It is only in the colonialization period when lands went majorly in the hands of private players for activities like mining which became an important source of revenue collection for the colonial regimes. When a lot of nations became independent in the mid and late twentieth century, they started exercising full control over the natural resources belonging found within their territorial boundaries under well recognized principles of self-determination6 and permanent sovereignty over natural resources7.

Proponents of right to development in these newly independent countries saw this right as an inherent part of the Constitution, something that all newly independent nations were seen aspiring for. 8 The idea of private property is typically credited to Roman law, but the tradition is upheld in colonial and post-colonial regimes where private property and land ownership are valued components of governance. Private property and land ownership increased, supported colonial

6 UN Charter, Art 1(2).

7 UN General Assembly resolution 1803 (XVII) of 14 December 1962, Permanent sovereignty over natural

resources” (hereafter “Declaration on Permanent Sovereignty over Natural Resources, and Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda) 2005 I.C.J. Reports 168 [243-246]

8 Supra note 3.

property regimes, favoured individual rights, and shattered community land ownership. 9 The creation of dominant mining enterprises throughout colonies as a result of colonial exploitation that favoured private, frequently commercial ownership also reduced indigenous and local populations to labourers. Mining was used as a colonial tactic to establish exploitative institutions and construct enclave industries that dominated the economies and ways of life throughout the region. By outlawing local mining practises, repurposing local labour for extraction of minerals, and creating infrastructure for exportation of minerals from to foreign markets, colonial regimes established the export-oriented nature of mining industries.

The extraction of natural resources, being a top economic priority for the colonial state, particular procedures were put in place to guarantee the state’s continued dominance. Many local groups that existed after the end of colonial control were thus deprived of their rights to natural resources. 10 Several former colonies made efforts to address colonial dispossession through constitutional and legislative initiatives after independence. However, many newly independent republics chose to reinstate conventional access to land while keeping governmental control of minerals rather than restore community rights. 11 This strategy was in line with a new body of international law that attempted to assert state control over natural resources as a crucial element of self-determination, and which was mostly supported by former colonies.

12 In consequence of this, three UNGA resolutions were adopted affirming the sovereign right of peoples and nations over their natural resources. 13 This sovereign right extends to freely explore, exploit, use and dispose of the resources along with regulating foreign investment and to resolve disputes in conformity with applicable national law. 14 9 E ly, James W. , The Origins of Property Rights: The Colonial Period, in THE GUARDIAN OF EVERY OTHER RIGHT: A CONSTITUTIONAL HISTORY OF PROPERTY RIGHTS, 3rd Ed. , Bicentennial Essays on the Bill of Rights, Oxford Academic (2012). 10 Ibid. A position contrary to the judgment of Supreme Court in Reliance Natural Resources Ltd vs Reliance Industries Ltd 156 CompCas 455 (SC) and Association of Natural Gas & Ors. v. Union of India & Ors. (2004) 4 SCC 489 (CB).

11 A. Carleton, Constitutional Incorporation of the (Collective) Freedom to Govern Mineral Wealth: Comparing the Democratic Republic of the Congo and the Republic of Zambia, AFRICAN JOURNAL OF INTERNATIONAL AND COMPARATIVE LAW, Vol. 28, Issue 1, 2020.

12 D. Bodansky, J Brunnée and E Hey (eds), THE OXFORD HANDBOOK OF INTERNATIONAL

ENVIRONMENTAL LAW, 2008, p. 467. 13 UNGA Resolution 1803(XVII) of December 14, 1962; Resolution 523(VI) of Julyuary 12, 1952; and Resolution 626(VVI) of December 21, 1952.

14 Ibid.

IV.

Coal under Indian Constitution: A case of Federal Imbalance Under the federal structure of the nation, the State Governments of India are the owners of the minerals that are found inside their respective borders. 15 The Central Government is the owner of the minerals that are found in India’s territorial seas and exclusive economic zone. 16 According to List I (Union List) under the Seventh Schedule of the Constitution, the states are able to regulate mines and mineral development as per List II under the overall supervision of the Centre. 17 The Parliament has broad jurisdiction over mining-related issues if it determines that it is in the public interest to do so. 18 Invoking its authority under entry 54 of List I, the Central Government passed the Mines and Minerals (Development and Regulation) (MMDR) Act, 1957.

Under MMDR Act 1957 and the Mineral Concession Rules (MCR) 1960, The Central Government must first approve the issuing of mining concessions for the minerals mentioned in the First Schedule of the MMDR Act 1957 before the State Governments can give mineral concessions for any minerals found within their borders. 19 At present, it is unclear as to how much of the legislative territory covered by Entry 23 of List II has been absorbed by the MMRD Act 1957 as a result of Entry 54 of List I. There have been instances when conflicts arose due to imposition of taxes by States in accordance with List II Entries 18, 49, and 50. 20 Therefore, it is necessary to investigate the constitutional situation regarding the associated Entries in List I and II on the regulation and development of mines and minerals.

Similarly, states may enact laws pertaining to property and associated matters under Entry 18 of List II, and they may levy taxes on real estate and buildings under Entry 49 of List II. Due to their clash with Entry 54 of List I, levies under Entries 18, 49, and 50 of List II have given rise to controversies. List I Entry 54 should be read in conjunction with these entries. The State Legislatures’ jurisdiction is not abrogated until it is shown that an act is closely related to Entry

23 of List II. Because the money from the land cess was meant to be used to provide local

15 Amarendra Das, Regulatory Authority over Minerals: A Case for Review, EPW, Vol. 44, no. 10, 2009, p. 105.

16 Ibid.

17 Entry No. 23 of List II (State list), Seventh Schedule of Constitution of India.

18 Entry No. 54 of List I (Union list), Seventh Schedule of Constitution of India.

Mineral Concession System, Ministry of Mines, Government of India available at https://mines.gov.in/UserView/index?mid=1338, (visited on Julyuary 03, 2024). 20 Divya Datt et. al, “Resource Federalism in India: The Case of Minerals”, EPW, Vol. 44, Issue 8, 2009, available at https://www.epw.in/journal/2009/08/special-articles/resource-federalism-india-case-minerals.html, (visited on September 02, 2022).

residents with amenities like health care and education, the Supreme Court decided that Sections 78 and 79 of the Madras District Boards Act 1920, which dealt with the validity of demands for payment of land cess, had nothing to do with the development of mines and minerals or their regulation. 21 It was further pointed out that the land cess was not a tax nor a mineral right, but rather was essentially a charge on lands covered by entry 49 of List II. List II Entry 50 deals with the taxation of mineral rights. 22 This has been made clear to be subject

to any legislative limitations on the extraction of minerals that the Parliament may set. Entrance

50 of List II does not address taxes on royalties or cess. 23

The federal structure has taken a serious hit as a result of the centre’s overbearing control over mining activities, which has also diminished the influence of state governments in miningrelated issues. The state governments have been reduced to being only fictitious proprietors of the minerals they own, with no authority to set the amount of royalties or mining taxes. The constitutional stance on mining appears to be a continuation of the colonial past, intensifying the resource curse and compelling the resource-rich states to remain permanently in a condition of poverty. V.

Sustainable Mining Framework in India Numerous nations have instituted legal and regulatory structures to manage the detrimental effects of mining on the environment. India has also put in place a variety of laws, policies, guidelines, and standards to ensure the mining industry is sustainable. The Ministry of Mines (MoM) and the Ministry of Environment, Forest, and Climate Change (MoEFCC) have each passed a number of laws, rules, policies, and regulations to address the detrimental consequences of mining activities. The Environment Protection Act of 1986, which may grant the Central Government the authority to take any action for the preservation and enhancement of the environment, the Forest Conservation Act of 1980, 24 which requires forest clearance for non-forest activities carried out in forested areas, and the Environment Impact Notification of 2006, 25 which

21 H. R. S. Murthy v. Collector of Chittoor And Another 1965 AIR 177.

22 Ibid.

23 India Cement Ltd. & Ors. v. State of Tamil Nadu & Others, (1990) 1 SCC 12. The question whether mining royalty is a tax or not is still pending before nine-judge bench of Supreme Court in Mineral Area Development Authority & Ors. v. Steel Authority of India & Ors. (2011) 4 SCC 450.

24 Environment Protection Act 1986, S. 3.

25 Environmental Impact Assessment Notification 2006.

requires environmental clearance for development projects, are some of the environmental regulations that apply to mining. To lessen the effects of mining operations on the environment, the Central Pollution Control Board (CPCB) and State Pollution Control Boards (SPCB) were established under the Water (Prevention and Control of Pollution) Act of 1974, the Air (Prevention and Control of Pollution) Act of 1981, and the Coastal Zone Regulation of 2018. The state governments have established specialised departments for overseeing and regulating the mining industry of respective states in addition to the national regulatory authorities and in combination with the central institutions, laws, and regulations. Among the significant statelevel organisations are the Departments of Mining (DoM), Forestry (DoF), and State Pollution Control Boards.

DoM’s primary areas of responsibility are issuing mining concessions, supervising mining activities, and acting as a clearinghouse for state-specific mineral data. It supports the State’s mineral resource management, exploration, and exploitation. In addition to handling the permits for forest clearing that are required for a mining operation, the Department of Forestry (DoF) designates areas that are protected and where mining or any other industrial activity is forbidden. State-level regulatory agencies known as SPCBs make sure mining activities abide by laws and regulations meant to safeguard the air and water. The National Mineral Policy 1993 (revised in 2008) was the first document to address the best use of natural resources. It also emphasised the need for sustainable mining in order to preserve and replenish the finite mineral reserves.

26 It was determined that all mining would be done in compliance with the extensive Sustainable Development Framework, which offers recommendations for a smooth mine closure as well as appropriate reclamation and restoration to maintain the natural state. The National Mineral Policy 2019 incorporates the public trust theory, the notion of intergenerational equality, and the ownership of natural resources as commons. 27 As it views the State as the custodian of the people’s inheritance for the benefit of future generations, it advocates stringent laws to guarantee environmentally sound mining practices that consider social and economic concerns. In order to formalise the framework for ensuring sustainable growth in the mining sector, the NMP 2019 also recommends the establishment of an interministerial body. 28

26 National Mineral Policy, 2008.

Annual Report 2021-22, Ministry of Mines, Government of India, available at https://mines.gov.in/writereaddata/UploadFile/Mines_AR_2021-22_English.pdf p 24, (last visited on Feb 02, 2024).

28 Ibid.

In 2015, the MMDR amendment for the first time legally enforced sustainable development in the mining sector in India, following the 2005 recommendations of the Committee led by Anwarul Hoda. 29 As a result, the District Mineral Foundations (DMFs) were established to encourage the area’s and the population’s sustainable development. The creation of the DMF was one of the most crucial steps in institutionalising benefit sharing in the Indian mining sector. The Act was revised once again in 2020 and 2021 in order to sustain mineral output and boost mineral extraction. The MoM also published the Mineral Conservation and Development Rules (MCDR) 1988 (as amended in 2017) to guarantee safe and ethical mining, organised resource development, mineral conservation, and environmental protection around mines.

30 According to the Sustainable Development Framework (SDF), mining corporations are required to adhere to specific mining criteria, which include adopting scientific and environmentally friendly mining practices, addressing the social impacts of mining, and using scientific methods for mine reclamation and closure, among other things. Consequently, the ministry will score mining companies from 1 to 5 stars according on how well they run and follow these guidelines. In 2017, the mines’ star rating was made mandatory as part of the MCDR changes. It also described severe financial penalties for offenders.

The most recent amendment states that if any mining operation does not adhere to the SDF’s standards for scientific and efficient mining operations and does not receive at least a four-star rating within a period of two years following the date these rules were notified or two years following the date the mining operation began, the MoM will suspend the licence of such defaulting companies and seize their operations. The responsibility of ensuring that the MCDR and SDF regulations are properly applied has been delegated to the IBM by MoM. The MCDR mandates that mine operators follow the best practises for scientific mining and provide IBM’s authorised representatives and, in some circumstances, the appropriate state governments with the necessary plans, schemes, and reports.

IBM looks through these reports, and in some cases, including with mining plans, mining schemes, and mine closure plans, it gives the required permissions and then monitors the execution of those plans. Additionally, to enforce the 29 Sustainable Development: Emerging Issues in India’s Mineral Sector, Institute for Studies in Industrial Development (2012) available at: https://niti. gov. in/planningcommission. gov. in/docs/reports/sereport/ser/isid_mining%20_report1206. pdf, (visited on September 02, 2024). 30 The Mineral Conservation and Development Rules, 2017, published vide Notification No. G. S. R. 169(E), dated 27th February, 2017.

conditions of MCDR 1988, IBM representatives carry out field research/studies. IBM inspectors make sure that various scientific mining concepts are used in the mine operations when they perform inspections. They occasionally also provide guidance to mine managers and officials about scientific mining issues including environmental safety in the mines. Recently, National Non-Ferrous Metal Scrap Recycling Framework, 2020 has been rolled out with the goal of fostering a formal and well-organized recycling ecosystem by implementing energy-efficient recycling techniques that reduce carbon footprints and advance sustainable development and intergenerational equity. 31 Despite of these provisions, recently, the Ministry of Mines, in its annual report 2020-21 noted that the provisions on sustainable mining under MCDR 2017 are being violated.

The violations in FY 2020-21 was 107 while in 2021-22, it more than doubled to 308. 32 However, the reasons behind such violations wasn’t outlined in the report. Some of the potential reasons maybe: Inadequacy of the rules The current framework, whether it is the MCDR 2017 rules or the sustainable development framework (SDF) principles and star rating system, is fairly nebulous and norm-creating in nature without having any real fangs of its own. The regulations remain quiet regarding the obligations and responsibilities of the state with regard to the implementation of the sustainable mining framework and focus primarily on the duty of the mining industries. 33 The Nature of the Rules The sustainable mining related provisions under the MCDR 2017 and the SDF can’t be read in isolation.

While these are enacted by the Central Government and administered by the Ministry of Mines, a necessary reference has to be made to the Acts like Environment Protection Act 1986, Forest Conservation Act 1980, Air Act 1981, Water Act 1974, among others which fall within the Environment Ministry’s domain of authority. Also, when we talk about sustainable development, forest rights of tribals under the Forest Rights Act 2006 administered by Ministry

31 National Non-Ferrous Metal Scrap Recycling Framework 2020, Ministry of Mines, Government of

India,availableat https://www.mines.gov.in/writereaddata/UploadFile/NFMScrapRecyclingFramework3.pdf, (visited on July 02, 2024). Annual Report 2021-22, Ministry of Mines, Government of India, available at https://mines.gov.in/writereaddata/UploadFile/Mines_AR_2021-22_English.pdf, p. 75, (visited on July 02, 2024). 33 Rahul Basu, “Catastrophic Failure of Public Trust in Mining: Case Study of Goa”, EPW, Vol. 50, no. 38, p. 44, 2018.

of Tribal Affairs can’t be forgotten. Hence, all the Ministries have to cooperate and tackle the issue of sustainable mining in an integrated manner. Fiscal Federalism The topic of compensating States for protecting natural resources for interjurisdictional ecological services is more recent in India, but it has acquired traction quickly, particularly in relation to forests. Since the XII Finance Commission, subsequent Finance Commissions have taken up the subject, which was also extensively explored by the second Commission on Centre-State Relations (mostly in the context of ecological services supplied by forests).

The reason for FC’s involvement in environmental and natural resource management is that the forests, air and water are public goods with cross-jurisdictional spillovers that would be left unattended if left totally at the detriment of state governments and the increasing role of local governance bodies after 73rd and 74th amendment of the Constitution. The local bodies will play a crucial role in environmental management and hence adequate funding of these institutions interests FC. 34 However, grants have been given for forest conservation, air quality, water management and loss of opportunity cost on the basis of equity. Grants were also given for the production of grid electricity from renewable sources on performance basis in the XIIIth FC.

The XIV FC while suggesting devolution on the basis of forest cover maintained by the state acknowledged that states have the responsibility of environment management and climate change while creating suitable conditions for sustainable economic growth and development. All of the aforementioned FC initiatives are really initial steps and don’t address the larger issue of sustainability costs, which are still borne primarily by the states as a result of national regulation. Since sustainable development costs are an additional burden that are still not covered by revenue sharing or fund devolution by the Center with/on the states, the states lack the resources to implement sustainable development framework. Quest for economic expansion by the Centre The centre has made a number of actions to streamline the current laws.

The MMDR Act 1957 was modified in 2021 in order to enhance mineral production, facilitate ease of doing business, 34 Manish Gupta and Atul Sharma, “The Role of Finance Commissions in Intergovernmental Fiscal Management”, EPW, Vol. 57, Issue No. 6, 2022.

and raise the contribution of mineral production to the gross domestic product. 35 The amendment did away with the distinction between captive and commercial miners. As stipulated in the sixth schedule of the MMDR Act, all captive mines are permitted to sell up to 50% of the minerals produced annually in exchange for additional compensation after fulfilling the corresponding plant requirement. The prohibition on the transfer of mining concessions has been lifted, and there are no longer any transfer fees involved in the transfer of a mineral concession, ensuring ease of doing business. 36 Diversion of the District Mineral Funds (DMF) The MMDR Act allowed the Central Government to create DMFs in 2015.

The funds raised in the mining-affected areas are managed by non-profit trusts, which recognise them as partners in environmental protection and resource-led development, and use the funds for the welfare of the affected population, including the tribal and forest-dwelling populations. Every district having to do with mining gets its own DMF. Mining companies must pay DMF 30% of the royalty amount for leases issued before 2015 and 10% of the royalty amount for leases awarded through an auction process after 2015. Between September 2021 and 2015, contributions to the DMF funds were 53,830 crores. Just 26,879 crores, or 55%, of the allocated sum, had been spent. 37 A combined reading of all the above reasons suggests that financial crunch with the

implementation bodies could be the most significant reason for non-compliance with provisions relating to sustainability in the national legislations and policies. Currently, most of the sustainability measures are prescribed by the Centre with a belief that states will implement the same while the control over finances is still retained by the Centre. Control over mining activity, across the globe is majorly divided into three categories – exclusive control by the Centre, mixed control by centre and the state and finally control only by the sub national governments.38 There are plenty of examples of the first category like Zambia, Indonesia, etc.

35 The Mines and Minerals (Development and Regulation) Amendment Act, 2021.

36 Year-end review 2021: Centre takes measures in Mining Sector to facilitate ease of doing business, INDIA INFOLINE NEWS SERVICE, December 29, 2021 3:58 IST https://www.indiainfoline.com/article/news-indiarural/year-end-review-2021-centre-takes-measures-in-mining-sector-to-facilitate-ease-of-doing-business- 121122900349_1.html, (last visited on July 02, 2024). 37 “District mineral foundation funds and welfare of the mine-affected communities”, HINDUSTAN TIMES, Apr 01, 2022 12:54 PM IST, https://www.hindustantimes.com/ht-insight/economy/district-mineral-foundation-fundsand-welfare-of-the-mine-affected-communities-101648795928098.html, (last visited on July 02, 2024).

38 Supra note 3.

While, in the second category, falls Australia, Canada and US.39 There is hardly any example of the third. Currently, India follows mixed control method with balance of power tilting majorly in favour of the Centre. Since the violations are increasing there is definitely a problem with current fiscal devolution. Hence the current devolution system must be changed in accordance in line with changing the needs of the Constitution. VI.

Conclusion Endowments in mineral resources are sources of wealth, but they can also lead to social unrest, eviction, environmental harm, health impacts, and even act as a spark for conflict and violence. The distribution of the benefits and drawbacks of such development should therefore be the main topic of discussion when it comes to resource federalism. Mining is inadvertently constitutionalized through provisions addressing ownership, property rights, jurisdiction, development promotion, environmental protection, and indigenous and community engagement. These provisions of a country’s constitution serve as the final framework for the rules and regulations that govern and supervise mining.

The industry must be made more sustainable by adopting greener technologies, including social costs in the final economic valuation of the minerals, and balancing the interests of local/indigenous people who are primarily dependent on the forests where these minerals are found or the rights they were exercising on resources previously enjoyed without restriction. The current laws and regulations on mining must be brought into compliance with environmental regulations. Undoubtedly, sustainability also has a cost. Sometimes, in the form of additional costs for the states to bear, and other times, when they choose not to use a certain resource to ensure its longterm availability and in favour of other resources that would otherwise suffer from mining.

Since the Central Government’s current budgetary allocation does not cover this expense, a new head for devolution to the states based on equity must be devised. The primary stakeholders like the indigenous people of the region must be consulted before the projects or plans on mining are being finalized by the government. Free, Prior and Informed consent (FPIC) of these people should be taken. Already, nations like Bolivia40 and Equador41 have a

39 Supra note 3.

40 Art. 30 S. II(15) of the Constitution of Bolivia.

41 Art. 57(7) of the Constitution of the Republic of Ecuador.

constitutional provision on right to consultation with respect to exploitation of non-renewable natural resources. As mineral-related matters are a contentious issue for both the federal government and the states, resource federalism can be strengthened by using independent bodies like the Finance Commission or any other third-party mechanism to increase the scope of local governance, improve compensation and the equitable distribution of resource revenues, and strengthen local institutional capacity. Compensation must to cover more than just the expenses of producing and using resources, though. A portion of the economic rents and the project’s benefits ought to be included as well. Such compensation must provide people who took part in the project with assets, livelihoods, and land equity in the business, in addition to merely replacing what has been lost.

Residents living in mining districts are entitled to a percentage of royalty payments; however, this payment is not made directly to them; rather, it funds specialised programs intended to teach them new skills. The process of resource development causes significant changes in people’s lives. A generation as a whole loses its skills and depends on resource development. If proper planning has not been done, after a project is closed, the inhabitants are left with few possibilities as their main resource has been used up, and what were their conventional professions prior to the resource development are lost. In a real federation, this cannot be tolerated.

Federations must acknowledge that locals have a moral right to a part in the depletion component of the royalty payment due to the limited nature of natural resources and the significant changes they cause in locals’ lives over their development cycles. The Supreme Court in the landmark Samatha judgment,42 suggested that 20 per cent of profits from mining should be shared by the mining companies for the development of mining-affected regions. The involvement of Gram Sabhas in DMF planning efforts was advocated by the Ministry of Mines in 2019 and is required by various state DMF regulations. In India’s most rural areas, those who are damaged by mining usually lack access to technology, appropriate understanding about these funds/initiatives, and awareness of their legal obligations. Institutions in the area are underutilised and unable to participate.

When the legal institutions are already in existence, strengthening local institutions’ capabilities and human aptitude should be sought under sustainable development programmes. The localization of externalities requires institutional

42 Samatha vs. State of Andhra Pradesh AIR 1997 SC 3297.

strengthening. It is correct that governments should have the authority to manage their resources in accordance with their needs, including generating income from them, as they are the owners of the minerals. However, it is equally crucial that the money made in this way is used wisely. The states and local governments should be compelled to put in place sufficient processes and have the financial resources to address the negative effects of mining on both the environment and the populace. The management of such income may frequently be insufficient due to corruption, a lack of accountability, or a lack of implementation competence. The drawbacks of resource development imply that the needs of resource-rich states should be considered as a sub-state, local problem as well since different groups have interests in the development of resources or in their non-development.

Federalism of resources must take into account this inclusive governance. 43

43 Supra note 25.