The Union steel minister has claimed a greater role in the allotment of mines for iron ore, which finds itself at the centre of a storm raging at various different planes. Issuing too many mining licenses to non-steel-makers, in the minister?s view, hurts the Indian steel industry and thus national interest. This is simplistic nationalism. Open competition at as many points as possible of the value chain of any industry, as the global example of computers has shown, is the surest way to ensure overall market efficiency from which everyone benefits. Reserving mines for steel-makers would narrow the scope for market forces at the input stage. Moreover, such a move will be against the spirit of reforms outlined by the National Mineral Policy of 1993, which opened up 13 important minerals including iron ore to private sector investment. The only regulatory rider is the statement that preference in granting licences should be accorded to companies with special knowledge or experience of mining operations. This is vague, and it would be better to allot licences through transparent tenders or auctions conducted by state governments in consultation with the Indian Bureau of Mines, as recommended by many experts.
While captive mines are prized by steel-makers, those who lack them are not necessarily at a disadvantage. If there is no unfair favouritism in their allotment, there is no economic theory or experience to suggest that steel-makers would be served worse by a competitive market for iron ore in which assorted mining players operate. The trouble is the fear that natural resources are unnaturally subject to statist intervention and political pressures. But the global dynamics of iron ore cannot be compared to that of crude oil, say, and it would help the cause of efficiency to reduce the output share of captive mining from a quarter to just a tenth over the next decade by expanding the free market for iron ore. The freight-on-board cost of Indian ore is around three times that of Brazilian ore, which speaks of gross systemic inefficiencies in India that foreign investment and more competition could attack. India needs mining majors of its own, too, that are globally competitive. An efficient market could ensure a smooth flow of supplies to all. Adherence to the principles of openness requires the country to break free of fixations that the economy has outgrown.
