Royalty vs Federalism: India’s Next Constitutional Battle
Coal mining in India! (Image Coal India)
A federal mineral council—comprising the Centre, mineral-rich States and industry—could institutionalise dialogue and prevent litigation-driven ruptures.
By P. SESH KUMAR
New Delhi, November 29, 2025 — India’s mineral economy is bracing for a tectonic judicial reconsideration. The Supreme Court’s earlier nine-judge ruling on the nature of mineral royalty—its constitutional character, its fiscal implications and its placement in the federal architecture—has triggered a curative plea by the Union Government, signifying both dissatisfaction and deep apprehension about the long-term impact of the judgment.
The dispute is not an academic quarrel about definitions but a high-stakes battle involving revenue flows worth tens of thousands of crores, pricing stability for core industries, ease of doing business, and the fragile equilibrium between the Union and the States.
The controversy over mineral royalty has never been merely about semantics. It is a constitutional riddle that has shadowed India’s mining sector for half a century, oscillating between interpretations of royalty as a tax, a fee, a price or a sui generis exaction unique to the mining world.
Every outcome has carried massive consequences for public finance. The States, sensing a rare domain where the Constitution empowers them to raise substantial non-tax revenue, have always asserted that royalty must remain their sovereign right.
The Centre, wary of fragmentation, distortions and fiscal unpredictability across States, has fought to retain a uniform framework anchored in national legislation.
The Supreme Court’s larger bench ruling attempted to settle this once and for all, but rather than closing the debate, it ignited a new one. The Union Government’s curative plea—an extraordinary procedural step used sparingly in India’s judicial history-signals that the implications of the judgment are far too serious to be left unexamined.
The Solicitor General’s submission, captured in social media, lays out the anxiety plainly: different States, left entirely to their own sovereign devices, may impose different royalty rates, generating divergent mineral prices with both domestic and international spillovers.
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The fear is not exaggerated. In a sector where coal, bauxite, iron ore, limestone and rare earths feed into national power, steel, cement and defence supply chains, even a small difference in royalty can cascade into uneven industrial growth, relocation of plants, and arbitrage-driven distortions.
The issues run deeper. A judgment that empowers States to tweak royalty without a harmonised framework could weaken the constitutional design of mineral management under the Mines and Minerals (Development and Regulation) Act, or MMDR Act which was enacted precisely to ensure national uniformity.
The Centre fears that its policy levers over exploration, pricing stability, national security minerals and export competitiveness may erode. States, in contrast, argue that they finally have breathing space to monetise their mineral wealth without being constrained by Delhi’s diktats.
India’s mineral regime today sits atop a three-tiered web of obligations that every miner must navigate before lifting a single tonne of ore.
At the apex is the National Mineral Exploration Trust (NMET), a quiet but powerful national pot fed by two percent of every royalty rupee, created to chase new geological frontiers and end India’s embarrassing dependence on imported minerals.
Mirroring it in the States is the State Mineral Exploration Trust (SMET), the decentralised engine room that bankrolls local exploration, prospecting, drilling and pre-auction studies so that States can monetise their mineral wealth without queuing up in Delhi.
And anchoring this entire structure at the grassroots is the District Mineral Foundation (DMF)—the largest social-impact fund no one talks about—powered by up to thirty percent of royalty, mandated to repair the scars of mining and restore dignity to people whose land, water and lives lie in the shadow of pits and quarries.
Together, NMET, SMET and DMF form the financial heart of India’s mineral economy, shaping not just exploration and extraction but equity, welfare and long-term sustainability.
The economic implications are profound. Royalty constitutes between 15 to 25 percent of production cost for several minerals. An uncoordinated spike by one major mineral-producing State can ripple across sectors, raising the cost of steel, cement, power and construction.
Industries operating pan-India dread compliance nightmares if every State begins to notify its own methodology, frequency of revision and ancillary levies such as DMF, NMET or infrastructure charges.
For investors, this is the antithesis of ease of doing business. For exporters, differential royalty regimes can weaken competitiveness in global markets already plagued by tight margins.
For States themselves, a race to the top may ultimately damage local industry, while a race to the bottom may erode revenues without stimulating growth.
Centre-State relations face turbulence too. The Centre’s attempt to have the curative plea heard before the constitution bench resumes is a signal that the status quo threatens the federation’s economic coherence.
Yet States will argue that federalism is not an inconvenience to be overridden for national uniformity. This sets the stage for a constitutional contest where both sides wield legitimate arguments.
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The presently applicable judgment has effectively reopened the door for States to claim a firmer grip over royalty determination. Revenue projections in several States have already been recalibrated on the assumption of enhanced royalty flexibility.
The Centre, meanwhile, faces uncertainty in mineral-linked national planning, especially in coal, critical minerals and defence-sensitive ores. Industries dealing in long-term contracts or pricing commitments remain in limbo, waiting for clarity.
International investors with mining concessions fear regulatory unpredictability. Export-oriented sectors are anxious about cost escalations that could erode India’s competitiveness.
The Supreme Court, when it frames issues for fresh consideration, will inevitably confront several fundamental questions. It will have to revisit the constitutional character of royalty—whether it is a tax under Entry 50, a fee reflecting compensation for depletion of a sovereign resource, or a hybrid.
It will have to test whether the MMDR Act is truly intended to be an exhaustive code and whether State discretion can be reconciled with national uniformity. It will have to determine how federalism should be interpreted in sectors where natural resources belong to States but economic consequences transcend boundaries.
It will have to assess whether Parliament’s power under Entry 54 prevails over State autonomy under Entry 23. It will also have to consider whether royalty, in its economic impact, has become indistinguishable from a tax and therefore requires tighter central control to prevent market fragmentation.
And above all, it will need to decide whether judicial deference should tilt towards national economic stability or State-level fiscal sovereignty.
Whichever way the pendulum swings, the impact will be felt across the fiscal system. States may see windfall gains or sharp curtailment. The Centre may find itself constrained or re-empowered.
Businesses may either celebrate predictability or brace for fractured pricing regimes. International markets will watch with interest, as mineral pricing in India influences resource-dependent sectors across Asia.
Finding Harmony in Policy
India needs a transparent, nationally coordinated yet constitutionally respectful mineral royalty framework. The best solution lies neither in absolute centralisation nor in unfettered State autonomy but in a harmonised model that retains Parliament’s power to set broad parameters while allowing States calibrated flexibility within that framework.
A national royalty indexation mechanism linked to market prices, inflation and sustainability costs could eliminate arbitrary hikes while giving States predictable revenue. A federal mineral council—comprising the Centre, mineral-rich States and industry—could institutionalise dialogue and prevent litigation-driven ruptures.
And the Supreme Court, in its fresh consideration, should endeavour not just to interpret constitutional entries but to craft doctrinal clarity that balances federalism with economic integration.
The curative plea opens the door to course correction, but the eventual solution must arise not merely from judicial craftsmanship but from coordinated legislative and executive reform. India’s mineral wealth deserves regulatory certainty, fiscal stability and cooperative federalism-not yet another cycle of constitutional ambiguity.
(This is an opinion piece, and views expressed are those of the author only)
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