Odisha and Goa have opposed the Centre’s proposal to cap royalty premiums, saying the 50% ceiling could cut their iron ore earnings by half. Odisha alone collected nearly ₹50,000 crore in royalties and auction proceeds in FY22, and both states fear the cap would severely weaken their fiscal position.
This assumes significance because auction premiums have emerged as one of the biggest revenue lifelines for mineral-rich states, and any cap would fundamentally reshape how money flows from future mining auctions. A 50% ceiling would sharply reduce what states earn from iron ore: for instance, when ore valued at ₹1,000 per tonne attracts a 100% premium, the state earns an equal ₹1,000 per tonne in premium plus royalty, but a cap would nearly cut this income in half.
Steelmakers, however, say the proposal creates a different imbalance: shifting a large part of payments upfront would favour deep-pocketed players with stronger balance sheets and squeeze out mid-sized mills already struggling with high ore costs.
Capping auction premiums would reduce state government revenues, since they are currently benefitting from exceptionally high bids and switching to upfront payment may again favour large steelmakers with deep pockets, as not everyone can afford heavy payments at the start, said said Nishtha Mukerjee Sinha, general manager for iron ore, ferro alloys, coal at BigMint, a commodities market intelligence firm.
What the Centre is proposing
The Ministry of Mines has proposed capping premiums at 50% of ore value, replacing the current open-ended bidding system where quoted premiums often exceed 100%. In return, companies would pay a higher upfront fee to acquire a block. The government believes this would discourage firms from sitting on assets without production, a key factor it says has weakened India’s iron ore supply chain.
Under the existing system, many companies acquire rights but delay starting operations, as state revenues depend mainly on royalties tied to ore value rather than time-bound extraction. By shifting part of the payment upfront, the Centre hopes miners will be compelled to begin production sooner because those costs start amortizing immediately.
Industry pushback
Steelmakers argue the proposed system would tilt the field toward large cash-rich firms with deep pockets.
“It gives a natural advantage to deep-pocketed players and squeezes out small and mid-sized steel mills,” said an executive who is part of the advisory committee.
An increase in upfront payment will significantly push up steel companies’ cost, impacting their cash flow and future investment prospects, if the mine development processes stop. Most of the mines proposed to be up for auctions need to be developed (with additional investments) before the mineral is retrieved.
How the reform process stalled
The proposal originated in a high-level meeting of the mines, commerce and steel ministries, as well as key industry stakeholders. It was later reviewed by an advisory committee set up by the Ministry of Mines and chaired by Additional Secretary Sanjay Lohiya on 28 August. The 17-member panel was tasked with recommending ways to boost iron ore and steel output and identify policy bottlenecks.
Additionally, another proposal to impose a duty on low-grade iron ore, which has lower than 58% iron content, was also opposed by miners, Mint reported on 15 September.
These proposed reforms— intended to boost ore supply, ease cost pressures for steelmakers, stabilize prices, and improve export competitiveness— have now suffered a setback.
The advisory committee was created to push down Indian iron ore prices and ease steelmaking costs. With no significant price correction so far, the delay also hampers the much-needed ramp-up in iron ore output. For instance, India’s crude steel production has grown at 15-20% in the last couple of fiscals, while iron ore supply has risen by 10-15%, said Sinha.
Executives and ministry officials told Mint that internal objections from two ministries, resistance from iron ore bearing states, and concerns raised by several stakeholders about the limited benefits of the proposals have together stalled the reform process. As a result, any policy changes now appear unlikely in the near term.
“The delay effectively pushes back any immediate improvement in ore availability or relief in steel input costs,” said an executive from the committee requesting anonymity.
The panel, mandated to meet every 15 days, has not convened for over two months. Its last meeting took place in the second week of September. Members include representatives from the environment, commerce and industry, steel and coal ministries, along with SAIL, JSW Steel, Jindal Steel, OMC, the Indian Steel Association, NMDC and others. Mint has reviewed a copy of the order.
An email sent to Lohiya and the steel and mines ministries remained unanswered.
High premiums, high stakes
A senior official in the Ministry of Steel said the measures are “currently on hold.” Another official added, “Lower premiums directly translate into lower state revenues.”
Under current norms, state governments continue to earn significant sums from mineral auctions. Concessions for major minerals—including iron ore—are allocated through state-level e-auctions. Successful bidders pay royalties on extracted ore and an auction premium based on their winning bid. For iron ore, these premiums often exceed 100% of the sale price.
State governments earn revenue from mining through multiple streams. The first is royalty, a statutory charge paid by the leaseholder based on the quantity or value of minerals extracted. The second is the auction premium, an additional payment discovered through competitive bidding and paid by the winning bidder over the life of the lease.
Odisha, India’s largest iron ore producer, has been a major beneficiary. In 2022, then Mines Minister Pralhad Joshi told Parliament that the state collected ₹21,757 crore from royalty, rent and premium from just 35 blocks—contributing to nearly ₹50,000 crore of mining revenue in FY22. It was cited as the biggest success story of the Centre’s policy.