Indirectly mining affected people in Odisha get substantial DMF fund, CAG unearths

Polity & Governance / Resource Mobilization · 29 September 2026 · Based on The Hindu (original report)

2-minute summary

A performance audit by the Comptroller and Auditor General (CAG) of India on the implementation of the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) and District Mineral Foundations (DMF) in Odisha has revealed significant financial irregularities. The audit, tabled in the Odisha Legislative Assembly, found that DMF funds meant for mining-affected populations were diverted to ineligible projects and areas. Under the Odisha DMF Rules, 2015, spending on indirectly affected areas is capped at 40%. However, districts like Keonjhar, Sundargarh, and Jajpur bypassed this limit by creating an unauthorized category called 'Common affected areas', spending over ₹2,578 crore without any rule provision. Furthermore, five out of six test-checked districts failed to identify directly or indirectly affected people, severely hindering targeted rehabilitation, resettlement, and public transparency.

Why it's in the news

The CAG tabled a performance audit report in the Odisha Legislative Assembly exposing major rule deviations, unauthorized fund classifications, and a lack of beneficiary identification in the utilization of District Mineral Foundation (DMF) funds up to March 2024.

Facts to remember

• Under the Odisha DMF Rules, 2015, spending on indirectly affected areas is capped at 40%.
• Districts like Keonjhar, Sundargarh, and Jajpur bypassed the spending limit by creating an unauthorized category called Common affected areas, spending over ₹2,578 crore.
• District Mineral Foundations were introduced under the Mines and Minerals Development and Regulation Amendment Act, 2015.
• At least 60% of DMF funds must be spent on high-priority areas and up to 40% on other priority areas.

Background and context

District Mineral Foundations (DMFs) were introduced under the Mines and Minerals (Development and Regulation) (MMDR) Amendment Act, 2015. They are established as non-profit statutory trusts in mining-affected districts to work for the interest and benefit of persons and areas affected by mining-related operations. DMFs are funded through contributions (a percentage of royalty) made by mining leaseholders. To guide the utilization of these funds, the Central Government launched the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY). PMKKKY mandates that at least 60% of DMF funds must be spent on 'high-priority areas' (such as drinking water, health, education, and sanitation) and up to 40% on 'other priority areas' (such as physical infrastructure and energy). State-specific rules, like the Odisha DMF Rules, 2015, further regulate spending limits between directly and indirectly affected areas to ensure equitable local development.

Constitutional provisions

• Article 148 — Establishes the office of the Comptroller and Auditor General (CAG) of India as an independent constitutional authority.
• Article 149 — Prescribes the duties and powers of the CAG in relation to the accounts of the Union, States, and any other authority or body.
• Article 151(2) — Mandates that the CAG's reports relating to the accounts of a State must be submitted to the Governor, who causes them to be laid before the State Legislature.

Committees and reports

• CAG Performance Audit on Implementation of PMKKKY including functioning of DMFs in Odisha — Exposed systematic deviations in fund utilization, lack of beneficiary identification, and the creation of unauthorized expenditure categories.

Government schemes

• Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) — A national programme aimed at welfare of mining-affected areas and people, funded entirely through DMF collections.
• District Mineral Foundation (DMF) — Statutory trusts set up in mining districts under the MMDR Amendment Act, 2015, to manage local development funds.

Previous UPSC questions on this theme

• Prelims GS-1 2016 — What is/are the purpose/purposes of 'District Mineral Foundations' in India? 1. Promoting mineral exploration activities in mineral-rich districts 2. Protecting the interests of the persons affected by mining operations 3. Authorizing State Governments to issue licences for mineral exploration (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3

Mains practice: Evaluate the role of District Mineral Foundations (DMFs) in ensuring inclusive development in mining-affected regions. In light of recent audit findings, discuss the governance challenges plaguing these bodies and suggest remedial measures.

District Mineral Foundations (DMFs), established under the MMDR Amendment Act 2015, represent a paradigm shift in resource governance by ensuring that local communities benefit directly from mining revenues. Operating under the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), they aim to mitigate the socio-environmental externalities of mining.

**Governance Challenges Plaguing DMFs:**

• **Fund Diversion and Misclassification:** As highlighted by the recent CAG audit in Odisha, districts created unauthorized categories like 'Common affected areas' to bypass the statutory 40% cap on spending in indirectly affected areas, leading to over ₹2,578 crore being spent without rule provisions.

• **Failure in Beneficiary Identification:** Five out of six audited DMFs in Odisha failed to identify directly and indirectly affected populations. Without a defined beneficiary list, targeted rehabilitation and livelihood support remain impossible.

• **Neglect of High-Priority Sectors:** Funds are frequently diverted to general infrastructure projects in urban or unaffected areas, neglecting critical local needs such as clean drinking water, healthcare, and environmental restoration.

• **Lack of Transparency and Social Audit:** Failure to maintain updated public registries and websites prevents local communities and Gram Sabhas from monitoring expenditures, eroding democratic accountability.

**Remedial Measures:**

• **Strict Regulatory Compliance:** The Ministry of Mines must standardize definitions of affected areas and enforce strict penalties for rule deviations.

• **Mandatory Social Audits:** Gram Sabhas must be actively involved in identifying beneficiaries and approving project lists to ensure bottom-up planning.

• **Institutional Capacity Building:** Strengthening the administrative capacity of DMF trusts to manage large funds transparently through digital portals and real-time geo-tagging.

In conclusion, while DMFs hold immense potential for distributive justice, addressing these governance deficits is vital to ensure that India's resource wealth translates into sustainable human development.

Prelims practice questions

Q1. With reference to District Mineral Foundations (DMFs) in India, consider the following statements: 1. They are established as statutory non-profit trusts under the Mines and Minerals (Development and Regulation) Amendment Act, 2015. 2. The funds for DMF are contributed directly from the Consolidated Fund of India. 3. The Gram Sabha has a mandated role in identifying beneficiaries under DMF rules in scheduled areas. Which of the statements given above are correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2 and 3

Answer: C. Statement 1 is correct; DMFs are statutory non-profit trusts under the MMDR Amendment Act, 2015. Statement 2 is incorrect; DMF funds are contributed by mining lease holders (as a percentage of royalty), not from the Consolidated Fund of India. Statement 3 is correct; Gram Sabhas have a mandated role in identifying beneficiaries and approving projects, especially in Scheduled Areas.

Q2. Under the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) guidelines, what minimum percentage of District Mineral Foundation (DMF) funds must be utilized for 'High Priority Areas'?

1. 40%
2. 50%
3. 60%
4. 70%

Answer: C. According to PMKKKY guidelines, at least 60% of the DMF funds must be utilized for 'High Priority Areas' such as drinking water supply, health care, education, environmental conservation, and sanitation.

Q3. Which of the following statements is/are correct regarding the Comptroller and Auditor General (CAG) of India's role in auditing state accounts? 1. The CAG submits audit reports relating to the accounts of a State to the Governor, who causes them to be laid before the State Legislature. 2. The CAG's authority to audit state government entities is derived directly from Article 149 of the Constitution and the CAG Act, 1971. Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: C. Both statements are correct. Under Article 151(2), the CAG submits reports of State accounts to the Governor to be laid before the State Legislature. Article 149 and the CAG (DPC) Act, 1971, govern the duties and powers of the CAG.

Revision flashcards

• Under which Act are District Mineral Foundations (DMFs) established? Mines and Minerals (Development and Regulation) (MMDR) Amendment Act, 2015.
• What is the funding source for District Mineral Foundations (DMFs)? Contributions (a percentage of royalty) paid by mining lease holders in the respective district.
• What is the primary objective of the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY)? To implement developmental and welfare projects in mining-affected areas using DMF funds, minimizing adverse environmental and health impacts.
• What is the statutory limit for spending DMF funds on indirectly affected areas under Odisha DMF Rules? Not more than 40% of the total DMF funds.
• Which constitutional article mandates the CAG to submit audit reports of state accounts to the Governor? Article 151(2) of the Constitution of India.