CAG Report Flags Irregularities in Use of DMF Funds in Odisha
Why in news?
CAG performance audit found Odisha’s DMF funds spent beyond prescribed limits through an ineligible “common affected areas” category.
UPSC Relevance
Prelims: District Mineral Foundation (DMF); Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY); MMDR Act, 1957; Comptroller and Auditor General (CAG); mineral distribution in Odisha.
Mains GS-II: Constitutional bodies (CAG); government policies and interventions; welfare schemes for vulnerable sections (tribals, mining-affected communities); transparency and accountability.
Key findings of the CAG report
- The Comptroller and Auditor General (CAG) of India has found irregularities in the use of District Mineral Foundation (DMF) funds in Odisha. The CAG found money being spent without following the rules and on ineligible works.
- The findings are part of a performance audit titled ‘Implementation of Pradhan Mantri Khanij Kshetra Kalyan Yojana, including the functioning of District Mineral Foundations in Odisha’, for the year ended March 2024.
- Delay in identification: mineral-bearing districts were late in identifying the people and areas that are directly and indirectly affected by mining. Without this identification, funds cannot be correctly targeted.
- The 40% rule: under Rule 10(D) of the Odisha DMF Rules, 2015, not more than 40% of DMF funds can be used for activities in indirectly affected areas. The rest must go to directly affected areas, where the harm from mining is greatest.
- A ‘new category’ to hide excess spending: in Keonjhar and Sundargarh, the amounts shown as spent in indirectly affected areas appeared to be within the 40% limit. But 30.67% (Keonjhar) and 22.67% (Sundargarh) of the sanctioned amounts were shown under a new category called “common affected areas”, which does not exist in the rules.
- When this amount is counted correctly, spending in indirectly affected areas rose beyond the limit to 45.68% in Keonjhar and 41.10% in Sundargarh.
- The CAG concluded that the new category was created only to fit ineligible spending within the prescribed limits.
What is the District Mineral Foundation (DMF)?
Mining brings revenue to the state but its costs — loss of land and forest, displacement, polluted water and air, and damaged health — fall mostly on local, often tribal, communities. The DMF was created so that a share of mining income is returned to these communities.
| Feature | Details |
| Legal basis | Section 9B of the Mines and Minerals (Development and Regulation) Act, 1957, inserted by the MMDR Amendment Act, 2015 (effective 12 January 2015) |
| Nature | A non-profit trust/body set up by the State Government through notification in every district affected by mining-related operations |
| Objective | To work for the interest and benefit of persons and areas affected by mining-related operations |
| Composition and functions | Prescribed by the State Government (each state frames its own DMF Rules, e.g. Odisha DMF Rules, 2015); the District Collector/Deputy Commissioner heads the body |
| Source of funds | Contribution by mining lease holders, in addition to royalty, as notified by the Centre (up to one-third of royalty) for major minerals; for minor minerals, rates are fixed by the State Government |
| Nature of funds | Funds stay with the DMF at the district level; they are not part of the Consolidated Fund of the State and the Centre has barred their transfer to state treasuries or relief funds |
| Scheme implemented | Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) |
| Nodal Ministry | Ministry of Mines |
Rate of contribution to DMF (major minerals)
Under the Mines and Minerals (Contribution to District Mineral Foundation) Rules, 2015:
| Type of mining lease | Contribution to DMF |
| Leases granted before 12 January 2015 | 30% of royalty |
| Leases granted on or after 12 January 2015 (through auction) | 10% of royalty |
Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY)
- Launched in September 2015 by the Ministry of Mines and implemented by DMFs using DMF funds.
- Revised PMKKKY guidelines were issued in January 2024 to bring greater focus, accountability and uniformity to spending.
- It has three aims: to implement developmental and welfare projects in mining-affected areas that complement existing schemes; to reduce the adverse effects of mining on environment, health and livelihoods; and to ensure long-term sustainable livelihoods for affected people.
| High priority areas (at least 70% of funds) | Other priority areas (up to 30% of funds) |
| Drinking water supply; environment preservation and pollution control; health care; education; welfare of women and children; welfare of aged and disabled people; skill development and livelihood; sanitation; housing, agriculture and animal husbandry | Physical infrastructure (such as roads); irrigation; energy and watershed development; other measures to improve environmental quality in mining districts |
Directly vs indirectly affected areas
| Basis | Directly affected areas | Indirectly affected areas |
| Meaning | Areas where mining operations such as excavation, dumping and processing take place | Areas where local people suffer economic, social or environmental consequences of mining, such as polluted water, loss of livelihood or heavy traffic |
| Extent (2024 guidelines) | Villages and gram panchayats within a 15 km radius of a mine or cluster of mines | Areas up to 25 km from a mine or cluster of mines |
| Share of funds | Bulk of funds (at least 70% under 2024 guidelines; at least 60% under Odisha’s Rule 10(D)) | Remaining share (not more than 40% under Odisha’s Rule 10(D)) |
| Affected people include | Displaced and affected families (as defined under the Land Acquisition, Rehabilitation and Resettlement Act, 2013), people with traditional and usufruct rights over the land, and local users of the area | People living in the wider zone who bear the indirect costs of mining |
Why the DMF matters
- Answer to the resource curse: many of India’s richest mineral districts, such as Keonjhar, are among its poorest in health, nutrition and education. The DMF tries to break this paradox by returning mining wealth to local people.
- Compensatory and distributive justice: mining-affected communities bear the costs of mining but rarely share its gains. DMF funds give them a legal claim to a part of the benefits.
- Tribal rights: most mining districts fall in Fifth Schedule areas. The DMF is meant to work alongside the PESA Act, 1996 and the Forest Rights Act, 2006, which give gram sabhas a say over local resources.
- Large and assured funds: cumulative DMF collections across India have crossed ₹1 lakh crore, making it one of the largest pools of money dedicated to local development.
- States’ rights over minerals: in Mineral Area Development Authority v SAIL (2024), a nine-judge Constitution Bench held (8:1) that royalty is not a tax and that states can tax mineral rights. This makes the proper use of mineral revenue at the local level even more important.
Problems in the working of DMFs
- Diversion from priority needs: audits and studies (such as those by the Centre for Science and Environment) have found that a large share of funds went to roads, buildings and beautification, often in urban areas, instead of drinking water, health and nutrition for affected villages.
- Weak targeting: as the CAG found, delay in identifying directly and indirectly affected people means funds cannot reach those who suffer the most.
- Rule-bending: creating categories such as “common affected areas” to show compliance on paper weakens the entire design of the fund.
- Top-down control: DMFs are run largely by district officials and elected representatives, while gram sabhas and affected communities have little voice, despite PESA and FRA.
- Poor planning: many DMFs lack proper baseline surveys and perspective plans, leading to scattered, one-off projects.
- Large unspent balances: some DMFs sit on huge unused funds while basic needs remain unmet in mining villages.
- Low transparency: websites, annual reports and social audits are often incomplete or outdated, making public scrutiny difficult.
Way ahead
- Timely identification: complete the identification of directly and indirectly affected people and areas through surveys, and place the lists in the public domain.
- Strict adherence to rules: no spending outside categories recognised by the DMF Rules and PMKKKY guidelines; recover or regularise ineligible expenditure.
- Community participation: make gram sabha approval central to planning, especially in Fifth Schedule areas, in line with PESA and FRA.
- Needs-based planning: prepare baseline surveys and five-year perspective plans focused on health, nutrition, education, water and livelihoods.
- Transparency: real-time online dashboards, regular social audits and publication of annual reports.
- Accountability: act on CAG findings through the PAC, and fix responsibility for violations.
- Long-term security: set aside part of the funds as an endowment or trust fund for future generations, since mineral reserves will run out.
The DMF was designed as a tool of justice for people who pay the price of mining. The CAG’s findings in Odisha show that good design is not enough; without honest targeting, community voice and strict accountability, mining wealth may once again bypass the very people it was meant to help.
Practice MCQs
Q1. Consider the following statements about the District Mineral Foundation (DMF):
1. It was created under the Mines and Minerals (Development and Regulation) Act, 1957, through an amendment made in 2015.
2. Its composition and functions are prescribed by the Central Government.
3. For major mineral leases granted after 12 January 2015, the contribution to DMF is 10% of royalty.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: (b). Statement 2 is incorrect — the composition and functions of the DMF are prescribed by the State Government.
Q2. Under the Pradhan Mantri Khanij Kshetra Kalyan Yojana, how many of the following are ‘high priority areas’?
1. Drinking water supply
2. Welfare of aged and disabled people
3. Physical infrastructure such as roads
4. Skill development and livelihood
(a) Only one
(b) Only two
(c) Only three
(d) All four
Answer: (c). Physical infrastructure is an ‘other priority area’.
Q3. Consider the following pairs:
District — Mineral for which it is chiefly known
1. Jajpur (Sukinda valley) — Chromite
2. Keonjhar — Iron ore
3. Koraput — Coal
How many of the pairs given above are correctly matched?
(a) Only one
(b) Only two
(c) All three
(d) None
Answer: (b). Koraput is known for bauxite (Panchpatmali in the Koraput region); Talcher and Ib Valley are Odisha’s coalfields.
Mains Practice Questions
District Mineral Foundations were meant to turn mining wealth into local development, yet many mining districts remain among India’s most deprived. Examine the reasons and suggest measures to make DMFs more effective. (250 words, 15 marks)