India sits atop vast mineral riches—iron ore, coal, bauxite, manganese, and more—resources that legally belong to its people. Yet, for decades, these minerals have been stealthily siphoned away by a shadow economy that thrives in the dark corners of governance.
My recent paper, Accounting for the Incalculable: Shadow Economies, Tax Losses, and Informal Mining in India, unpacks the anatomy of this parallel economy. It reveals how thousands of crores in public revenue have been lost—not just to unauthorized extraction, but to a complex web of tax evasion, misreporting, collusion, and regulatory apathy.
What Is the Shadow Mining Economy?
The term refers to all unregulated, off-the-books mining operations—from illegal extraction in forest lands to companies underreporting ore grade to reduce royalty payments. Unlike small-scale informal mining done for subsistence, this shadow economy is orchestrated at industrial scale—often with political and bureaucratic patronage.
Between 2000 and 2022 alone, estimated fiscal losses from illegal mining in Goa, Odisha, Karnataka, and Jharkhand exceed ₹1 trillion. And that’s a conservative figure. Much of what occurs in the shadow mining economy isn’t even detected, let alone quantified.
The Stories Behind the Scams
The paper dives into major case studies that expose the workings of this dark economy:
- Goa, once India’s iron ore export hub, witnessed mining far beyond legal limits. The Shah Commission pegged losses at ₹35,000 crore. Illegal ore was exported while the state looked the other way—or worse, facilitated it.
- Odisha, India’s iron ore heartland, lost over ₹22,000 crore between 2015 and 2022 to evasion tactics like ore-grade misreporting and under-invoicing. Companies downgraded ore from 65% to 55% Fe on paper to avoid paying premiums.
- Karnataka’s infamous Bellary scandal birthed the term “Republic of Bellary.” Powerful politicians-turned-mine-owners used fake permits and shell firms to rob the exchequer of over ₹16,000 crore.
- Jharkhand, while less publicized, has seen a mix of corporate malpractice and decentralized illegal mining. Even reputable companies like Tata Steel were found extracting ore without valid approvals.
Each case reveals how easily public resources can be looted when systems are weak—and how difficult it is to reclaim what’s lost.
How the Loot Happens
The mechanisms are varied and ingenious:
- Mining outside lease boundaries or after lease expiry.
- Underreporting of output and falsifying transport records.
- Downgrading ore grade on paper to reduce royalties.
- Fake invoicing and GST fraud using shell companies.
- Export under-invoicing to shift profits overseas.
Each of these practices leads to cascading losses—not just of royalties, but of income tax, GST, and even export duties. The real tragedy? Every rupee lost this way is a rupee not spent on healthcare, schools, or infrastructure.
A Systemic Governance Crisis
These are not isolated incidents of greed—they point to deeper structural issues:
- Fragmented regulatory oversight and weak inter-agency coordination.
- Historical leniency in legal penalties (now partially reformed).
- Lack of real-time tracking and data reconciliation.
- Collusion between regulators and violators.
- Political funding from mining interests, often via opaque electoral bonds.
Without addressing these systemic gaps, reforms remain cosmetic. India’s mining governance, as it stands, offers too many loopholes and too few consequences.
The Path Forward: From Black Holes to Bright Spots
But the story isn’t all bleak. The paper also showcases states that are fighting back:
- Goa introduced GPS-tracked trucks and centralized ore monitoring.
- Karnataka’s post-ban system of e-auctions and mine categorization has curbed many irregularities.
- Odisha’s i3MS platform for mineral dispatches is a model worth scaling nationally.
Based on these experiences, the paper lays out a comprehensive set of policy recommendations—from digitizing supply chains and linking royalty systems to GST databases, to empowering local communities as watchdogs.
Why This Matters Now
As India races to become a global economic power, governance of natural resources is a litmus test. We cannot afford to let rent-seeking and black markets undermine national wealth. If we can account for the incalculable—by reclaiming lost revenues and restoring public oversight—India’s minerals can fund sustainable development rather than fuel inequality.
Read the full paper here