Human Rights Watch blasted the Indian government on Thursday for failing to regulate the country's "out of control" mining industry which it said fuelled corruption and damaged local communities.

The report from New York-based group said it was "hard to overstate" the scale of lawlessness in the multi-billion-dollar mining sector, with grave consequences for human rights and the environment.

"The government has encouraged lawlessness by failing to enforce the law or even monitor whether mine operators are complying with it," said Meenakshi Ganguly, the group's South Asia director.

Without any oversight, mining operations often caused "immense destruction", she said.

Researchers interviewed more than 80 people mainly in southwestern Goa and Karnataka, key iron mining states, where farmers told them mine operators had destroyed or contaminated vital water sources for drinking and irrigation.

Some spoke of thick layers of dust on their crops from continuous iron ore trucks passing through their villages, "destroying them and threatening economic ruin," said the report.

Residents also expressed fears they might suffer from serious health problems as the dust coated their homes and schools, while people who tried to speak out about the problems had faced intimidation or violence.

"All of these allegations echo common complaints about mining operations across many parts of India," the report said.

It added that the government's failure to monitor India's 2,600 authorised mining operations had provided fertile ground for a series of notorious corruption scandals in recent years.

One case led an Indian court to suspend all mining activity in a district of Karnataka last year where companies were accused of conniving with government officials to mine ore illegally.

The scam cost the state and federal exchequers $3.6 billion, a corruption ombudsman said, and state chief minister B.S. Yeddyurappa, accused of playing a central role, resigned after the scandal broke.

HRW said a key problem in mining was the "hopelessly dysfunctional" process of environmental clearance, often granted on the strength of impact reports commissioned and funded by the companies seeking permission.

The report pointed to the case of a mine in western Maharashtra state that received clearance despite its assessment containing chunks of data taken verbatim from a report written for a bauxite mine in Russia.

Law enforcement was described as an even bigger problem, with just a few dozen officials to oversee impacts of every Indian mine -- on top of many other industries -- making proper on-the-ground monitoring impossible.

The rights group called for fundamental changes to mining regulation and an assessment of the damage already done already under the current "woefully inadequate regime".

The report comes after state-run Coal India, responsible for 80 percent of the nation's coal output, has been struggling to meet targets.

In April the government directed the mining giant to sign guaranteed supply deals with domestic power producers after industrialists said a lack of coal was stalling plans to build new plants to address India's chronic energy shortage.

In the latest in a slew of graft allegations to rock India, the government stands accused of giving away coal deposits instead of selling them through auction, at the cost of $210 billion in revenues.