File photo of Sand mining
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A nine-judge Bench of the Supreme Court headed by Chief Justice D Y Chandrachud handed down a ruling on July 25 that has the potential to change the balance of fiscal relations between the states and the Centre. Passed 8:1, with Justice B V Nagarathna dissenting, it upheld the right of the states to collect royalty, which it ruled was not a tax, on minerals extracted in their jurisdiction, unconstrained by the Mines and Minerals (Development and Regulation) Act of 1957.
In a further strengthening of the powers of the states, the top court ruled that they could also levy an additional cess on mineral-bearing land. This will be a bonanza for mineral-rich states, including Karnataka, which is among the top mineral-producing states by value.
The importance of the ruling, which overturned an earlier seven-judge Bench order, is not restricted to the mining sector. Chief Justice Chandrachud made it clear that the problem was being viewed through the lens of fiscal federalism.
‘Taxation is among the important sources of revenue for these states, impacting on their ability to deliver welfare schemes and services to the people. Fiscal federalism entails that the power of the states to levy taxes within the legislative domain carved out to them and subject to the limitations laid down by the Constitution must be secured from unconstitutional interference by Parliament,’ he emphasised. This perspective is especially important, given that a number of states have, in recent times, including in the wake of the recent Budget, complained that the Centre has been discriminating against states ruled by Opposition parties. Regardless of the merits of these claims, it appears that there is good reason to decentralise fiscal powers to enable the states to plan welfare schemes and development trajectories. It is by now a truism that regions in this country that are the richest in natural resources, especially minerals and forests, are also home to tribal communities and some of the poorest sections of the country’s population.
This is largely because the resources extracted from these regions usually flow outwards, without commensurate incomes or wealth being generated in the areas concerned. This model of development must be upended. Armed with greater fiscal and economic muscle, states must devise models of development that will bring into their scope people living in the regions from which natural resources are extracted. The initiative taken by the first United Progressive Alliance government to empower forest communities has regrettably been attenuated. It must be revived not only to give access to physical resources, but also to ensure fair returns on traditional knowledge.