District Mineral Fund collections bounce back from lockdown lows

Business Line | Oct 13, 2020

Rebound reflects recovery in mineral production across the country
Monthly collections in District Mineral Funds (DMF) have recovered significantly from their lockdown lows, with the gap between collections during 2020 and 2019 narrowing by September-end.

According to data shared by the Ministry of Mines, country-wide DMF collections last month stood at ₹718.46 crore, up from ₹417.29 crore in May, when the country was in the throes of the Covid-19 lockdown.

But compared to the ₹770.99 crore accrued in September 2019, the collections trailed by 6.81 per cent year-on-year.

Under the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), mining companies have to make a contribution for the development of districts where mining activities take place, over and above their royalty payments.

These DMF collections, therefore, are directly linked to the country’s mineral output.

The amount is accumulated in funds controlled by individual District Mineral Foundations.

Arriving at the amount

For mining leases granted on or after January 12, 2015, an incremental amount equal to 10 per cent of the royalty needs to be parked by the mining companies towards DMF contributions.

For those granted before January 12, 2015, the contribution is equal to 30 per cent of the royalty.

Since the royalty is levied either on a per-tonne basis or ad valorem (linked to the sale price of minerals), across States, an increase in mineral output means higher royalties being collected. This also means more accruals in the DMF. With the lockdowns curtailing economic activity, mineral production also took a hit.

Problematic quest for tangible assets

The Indian Express | September 21, 2021

Proposal to use District Mineral Foundation funds for creating infrastructure goes against the purpose of such funds – they need to be used for welfare of mining-affected communities.

The Ministry of Mines has recently proposed “reforms” in the mining sector under the Atmanirbhar Bharat scheme to stimulate economic growth in the wake of the COVID-19 pandemic. A key proposition of the reform draft is to amend rules/guidelines for the use of District Mineral Foundation (DMF) funds to increase focus on creating “tangible assets”. The Ministry of Mines (MoM), it seems, wants to direct a large corpus of funds meant for mining-affected communities towards only creating infrastructure.

The proposal undermines the very law under which DMFs have been instituted. It also opens the floor for massive misdirection of funds. DMFs are non-profit trusts set up in all mining districts of the country under the Mines and Minerals (Development and Regulation) Amendment Act, 2015 to work for the “interest and benefit of people and areas affected by mining-related operations.” Mining companies contribute 10-30 per cent on the royalty amount that they pay to the government to DMF Trust in the district they are operating in. The idea behind the contribution is that local mining-affected communities, mostly tribal and among the poorest in the country, also have the right to benefit from natural resources extracted from where they live.

Currently, DMFs have been set-up in 572 districts of the country, with a cumulative accrual of more than Rs 40,000 crore so far as per MoM data. The corpus is only growing. To give a broad estimate, the big coal districts like Dhanbad, Ramgarh and Chatra in Jharkhand are likely to accrue Rs 250 crore each annually in DMF. So will many key coal and iron ore mining districts of Chhattisgarh and Odisha, with estimates ranging from Rs 100-400 crore annually for each.

The functioning of the DMF trusts and the fund use governed by states’ DMF Rules incorporate the mandates of a central guideline, Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) that specifies high priority areas of investments.

Why shouldn’t the DMF fund use be tied to tangible assets?
First, DMF is a huge corpus available at the district level, it is not tied to any specific scheme, is non-lapsable, and comes with a mandate to improve the socio-economic well-being of the mining-affected communities. This gives scope as well as provision for decentralised planning for the use of funds. The law also underscores this.

At this critical time, when the effort is to bring the economy back on its feet, this is an opportunity to invest in building income security through local livelihoods, adequate healthcare and nutrition access to the most vulnerable group of people in mining districts. These areas are also considered high priority under PMKKKY on which districts are mandated to spend at least 60 per cent of their DMF funds.

Second, over the last five years, the biggest problem with the DMF investments across states has been a blind focus on construction of infrastructure. Analysis of data from states and key mining districts until March 2020 shows that investments in the physical infrastructure sector through DMF have been the highest, ranging from 30-40 per cent of the total investment. This is for roads and bridges alone. Parse through the investments in healthcare, nutrition, education and you will find largely construction works.

This has happened because investments have so far been ad hoc and unplanned. By putting the focus on creation of tangible assets, MoM would only end up diluting the very idea behind the institution of DMFs, reinforcing poor investments, quick to show on paper, but not of real value to the people it is meant to serve.

This is not to say that infrastructure isn’t needed. But most districts have departmental funds for this. Also, there is existing infrastructure which lies under-resourced. Often, “creating infrastructure” is the easiest and quickest way to show spending but making the infrastructure useful to people is the biggest challenge. Similarly, investing in local livelihoods is more challenging because it requires planning and shows results only after a few years. This is where DMF must step in to address the gaps, invest in human resources and local livelihoods, make existing schemes better, and innovate to build socio-economic equity and resilience. The fact that it is untied and non-lapsable allows for time to think and plan wisely.

Third, by tying DMFs to tangible assets the MoM would undo some small but meaningful strides made by states and districts to improve investments. Over the last couple of years, there has been growing evidence from districts that proves that DMF funds can be used to improve critical human development indicators and improve incomes and livelihood of mining-affected communities through better ways than just creating infrastructure.

Here are some examples. In June, the iron-ore rich Keonjhar district in Odisha topped up the wages paid under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) to match the state minimum wages. The district is using DMF funds to fill the gap and ensure more cash to the workers during the COVID-19 pandemic. Parity of minimum wages with MGNREGA wages has been a long-pending demand nationally.

The district recently also used the fund to integrate locally and agronomically produced millets into the Integrated Child Development Scheme (ICDS), a move to improve dietary diversity, nutrition indicators and also incomes of local self-health groups involved in food preparation.
The remote tribal and forested district of Bijapur in Chhattisgarh, set-up a fully functional district hospital by converging DMF funds with health department and other available funds. From a dilapidated building with a doctor or two, the district now has a hospital compliant with most Indian Public Health Standards (IPHS) norms.

DMF funds were particularly used to incentivise doctors and pay them competitive salaries. This had a cascading effect, with districts in Jharkhand and Odisha also improving local health access by hiring doctors and even paramedics. Kabirdham (Chhattisgarh) used it to train local Baiga tribe youth to teach in primary schools, creating local livelihood and addressing teaching shortage in one move. There are many such examples of convergence of funds, new and innovative initiatives, or just simply topping up the existing government schemes for better reach or impacts.

State governments are also gradually showing more inclination towards better investments. Chhattisgarh amended state DMF rules in September 2019 and gave representation to mining-affected people in the DMF decision-making body, asking for better focus on livelihoods, particularly forest-based livelihoods; Odisha amended its DMF rules in 2018 to improve focus on local livelihoods. The MoM itself put out a recommendation in 2019, calling for a focus on soft resources, long-term planning and better accountability of DMFs. The new reform measure focusing on creating tangible infrastructure would mean that these gains, which can be consolidated further, will be offset.

The overarching PMKKKY guideline needs strengthening. However, tying it to tangible assets is not the solution. Instead, the mandate must be for participatory local planning to address long-term needs of mining-affected areas and people. It must also ensure that districts are equipped with required expertise to aid their staff with this planning and implementation.

States must be given clarity on how to clearly and scientifically identify mining-affected people and delineate their respective mining-affected areas so that investments can be targeted towards them. Focus must be on achieving better human development indicators and building economic resilience among local communities.

Investment in infrastructure should strictly be a means to an end, and not an end in itself. Given the potential of DMFs, spending on infrastructure, in fact, must be brought down, monitored closely and tightly capped.

CBDT notifies rules on tax exemption for District Mineral Foundation Trusts

The Economic Times | Sep 10, 2020

The Central Board of Direct Taxes has exempted from tax the income of District Mineral Foundation Trusts arising from contribution by leaseholder to the foundation, interest on late payment, penalties, interest on the funds, saving bank accounts and that received from excess funds invested in term deposit.

The Board has specified conditions for availing the exemption. The Trust cannot engage in any commercial activity and activities and nature of the specified income shall remain unchanged throughout the financial years. The Trust has to file income tax returns and audit reports, certified by a chartered accountant.

“In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, ‘District Mineral Foundation Trust’ as specified in the schedule to this notification, constituted by Government in exercise of powers conferred under section 9(B) ofunchanged throughout the financial years. The Trust has to file income tax returns and audit reports, certified by a chartered accountant.

“In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, ‘District Mineral Foundation Trust’ as specified in the schedule to this notification, constituted by Government in exercise of powers conferred under section 9(B) of the Mines and Minerals (Development and Regulation) Amendment Act, 2015 (10 of 2015) as a ‘class of Authority’,” the Board said in a notification issued on September 10.

The exemption will apply for the assessment years 2018-2019, 2019-2020, 2020-2021, 2021-2022 and 2022-2023.

The District Mineral Foundation has been created in each district under the provisions of Mines and Minerals (Development and Regulation) (MMDR) Amendment Act, 2015 and falls under the purview of the Ministry of Mines. DMFs are funded by statutory contributions from holders of mining leases.

Industry bodies have previously sought subsuming all levies like royalty and contributions to the DMF into one tax like goods and services tax to reduce the tax burden on the mining industry. They have argued that the mining sector is going through a tough time due to falling commodity prices and demand contraction.

Federation of Indian Chambers of Commerce and Industry had previously underlined multiple challenges coupled with disruptions due to coronavirus lockdown, and sought deferment of royalty and contributions to DMF and National Mineral Exploration Trust (NMET) by six months.

Misuse of Mineral Foundation funds: HC asks Goa to respond in two weeks

The Hindustan Times | Aug 26, 2020

The petition has alleged that the Goa government has neglected the demands by those affected by mining and has instead diverted the funds for Covid-19 management

The Bombay high court (HC) at Goa has directed the Pramod Sawant-led government to respond within two weeks to a petition alleging misuse of funds by the two District Mineral Foundations (DMFs) in the coastal state.

The petition was filed by Sudesh Narayan Gaonkar and Nilesh Harishchandra Velip, who are residents of two mining-affected villages such as Velguem and Collem, respectively. The petitioners were supported by the Goa Foundation, a non-governmental organisation (NGO) known for its environmental activism.

The petition has alleged that the Goa government has neglected the demands by those affected by mining for long and has instead diverted the funds for the management of the raging coronavirus disease (Covid-19) outbreak in the state. The move is outside the scope of the DMFs, the plea added.

The petition has challenged the legal basis of the circular that has been issued by the state ministry of mines, which have recommended the diversion of the DMFs’ funds.

“There is a proposal to divert up to 30% of DMFs’ funds for Covid-19 relief measures in the state, while glossing over the primary objective of the reason behind the setting up of the mechanism. The persons for whom DMFs’ funds have been set aside by Parliament have suffered the ill-effects of mining activities for over two decades, as compared to the Covid-19 epidemic that was first reported in Goa less than six months ago,” alleged Claude Alvares, director, Goa Foundation.

Various mining-affected villages have filed proposals for improvement of their village assets, including water resources and agricultural fields, and have sought funds from the DMFs’ kitty to alleviate their woes.

However, the proposals have allegedly fallen on the state authorities’ deaf ears .

For instance, over 40 proposals have been received by a DMF alone for financial support, including for rehabilitation of village assets such irrigation sources and paddy fields.

“The two DMFs have abandoned their statutory responsibilities and the applications are still pending with the state government,” the petition alleged.

In 2018, the HC had lashed out at the Goa government for its failure to utilise the funds sanctioned under the DMFs.

“This state of affairs is shocking. The state government did not make the DMFs operational, despite collecting ₹180 crore for the past two and half years. We have been told that the money was invested, but we have not been informed under what heads the sum was utilised. The affected villages have been approaching us for basic amenities such as drinking water. Those affected by the mining cannot be made to toil for benefits that are rightfully theirs and in whose name hundreds of crores of rupees are collected by these foundations,” the HC had said in March 2018.

“We repeatedly asked the additional advocate-general for an explanation for such colossal neglect, but none was forthcoming. We are at a loss for words to describe the (state government’s) apathy,” the court had observed.

Under Section 9(B) of the Mines and Mineral (Development and Regulation) Act, 1957, each state is obligated to establish a DMF for a district that is affected by mining activities.

Goa has two such DMFs, one each for north and south Goa.

DMF is entrusted with the responsibility to work for the interests and benefits of the public and the areas affected by mining activities.

Mineral fund with Rs 23,800 cr can cushion Covid havoc in Odisha, Jharkhand, Chhattisgarh

The Print | May 28, 2020

The District Mineral Foundation funds have nearly Rs 23,800 cr after less than 40% of the amount accumulated over the past five years was spent.

Mumbai/New Delhi: An under-utilized $3.1 billion fund targeted at the poorest in India’s mining belt could prove to be a crucial resource in the South Asian nation’s fight against the coronavirus pandemic.

Created under a new law in 2015, the so-called District Mineral Foundation funds have nearly 238 billion rupees, after less than 40% of the amount accumulated over the past five years was spent, according to data from the country’s mines ministry. The funds were created from contributions by miners in addition to royalty payments and were aimed at improving the lives of people in areas affected by mining.

That could come to the aid of mining states, which decide how the funds should be used, after a nationwide lockdown shut factories, malls and offices, bringing the economy to a halt. As restrictions begin to ease, the states will need the funds to buy protective equipment, strengthen their medical infrastructure and create jobs.

“The DMF has come as a huge support for mining districts,” Amit Kumar, the deputy commissioner of Dhanbad district in Jharkhand known for its coal mines, said on Friday. “At the moment we have seven positive cases, but should the numbers rise, we will not be short on funds to deal with this.”

Dhanbad has used the funds for filling in staff vacancies at hospitals and for water and sanitation projects, an investment that’s being put to good use today, Kumar said.

The contagion is escalating in the South Asian nation of 1.3 billion people, with 150,793 infections, including 4,344 deaths as of Wednesday, according to data from Johns Hopkins University. To combat the virus, India’s government introduced the world’s biggest lockdown in March and extended it until May 31, while easing restrictions in certain sectors to boost economic activity.

The lockdown has had a damaging economic impact, with the country hurtling toward its first full-year contraction in four decades. An estimated 122 million people lost their jobs in April while consumer demand has evaporated.

Under-Utilized
“DMFs in various states and districts cannot afford to put the issue of livelihood in the backseat anymore,” Srestha Banerjee, a consultant at Brooking India, said in a report. “Given the urgency of the economic situation, the states and districts must shore-up investments towards this.”

Bureaucratic hurdles, ignorance by local political representatives of the DMF and its aims, lack of monitoring mechanisms and little pressure from the affected communities for its adequate utilization are some of the reasons for the slow deployment of funds in projects, according to Oxfam.

While some states like Chhattisgarh have spent a big portion of the funds on welfare projects, others like Odisha, which has collected the highest amount at 100 billion rupees, have spent about 35% so far, according to the mines ministry.

There is a lack of transparency and public accountability in the implementation of various welfare projects, Oxfam said. There is need for a mandatory monitoring mechanism tracked by the federal government, to ensure these funds are spent on projects that benefit communities and their local environment and livelihood rather than on capital and infrastructure projects only, it said. –Bloomberg

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