The government proposes to tighten its control on the mining sector through fiscal measures aimed at checking exports of iron ore to the lucrative Chinese market. The steel ministry is working on a proposal to increase the export duty on iron ore from the present 20% to 30% to enhance export deterrence.
While the ministry maintains that the rationale behind such a hike is to ensure sufficient supply of raw material for the domestic steel industry, the move also aims to check illegal mining as it continues to flourish in China.
?We are looking at another 10% hike across the board in iron ore export duty. The draft of the proposal is being worked out and would be discussed with the commerce and finance ministries,? a steel ministry official said.
Once notified, the higher duty on iron ore fines and lumps would also mean an additional R6,000-R8,000 crore revenue for the government. This is based on the prevailing iron ore price of $180-185 per tonne meant for exports. At the present level of 20% ad valorem duty, the government?s revenue generation is between R10,000 and R12,000 crore.
The iron ore miners and exporters, however, are against any move to further raise duty on iron ore. According to iron ore exporters, most of the ore moved out of the country is in the form of fines and is not of much use to the domestic steel units as they do not have facilities to utilise them. Moreover, the country produces over 220 million tonnes of iron ore, only half of which gets consumed in the domestic market.
?We are already struggling because of unavailability of the material. Most of the domestic units use iron ore lumps and not fines. There has to be a balance in exports and domestic consumption,? said Praveen Kumar, chairman of Maya Iron Ore.
India is the third largest iron ore supplier in the world. Miners feel that the duty hike would not have much impact as long as the iron ore prices in the international market are high right now. The iron ore prices for the 63% grade are hovering around $183-$190 per metric tonne (mt). For the lower grade of 45-46%, they are somewhere around $115 per mt.
India exports around 97 million tonne iron ore to various countries including China, Japan, Australia, South Korea and Singapore. In the first six months of 2011, around 42 million tonnes of iron ore has been exported to China alone.
According to the data collected by the Federation of Indian Minerals Industries, iron ore exports from India have fallen 21.86% to 25.29 million tonne during April-July. In April, they fell 29.01% to 8.142 mt and 16.89% in May to 9.338 mt.
The exporters, however, said that this was primarily because of unavailability of the material.
The hike, when imposed, would be the second hike in the export duty of iron ore. The government in the last Budget in February had raised the export duty on iron ore from 5% to 20%. Minister of steel Beni Prasad Verma recently told Parliament that the government may increase the export duty further.
The iron ore duty has also seen frequent revisions in the past. The government shifted from a fixed duty structure to 15% across-the-board ad valorem export duty on iron ore in June 2008 when ore prices were at their peak.
It, however, had to bring down the duty thereafter, reaching a 0% level in 2009, following a slowdown in the economy in the wake of the global financial meltdown. The duty level has subsequently been revised upwards a few times after that to reach the level of 5-15% before being revised again to the present 20%.