The Hindu Business Line : Public policy undermined

IT IS STRANGE that there should be a controversy at all over whether South Korean steel major Posco should be allowed to set up the infrastructure for mining iron ore for export as a quid pro quo for its decision to invest in steel manufacture in India. One thought the question of foreign investment in all but the most select of industries was long settled ever since the country embarked on a policy of economic liberalisation a decade and half ago. Take the argument that Posco should be permitted to extract iron ore only for captive consumption: Does the company see any synergy between steel-making and export of iron ore but not for export to its home market for local steel production? The objection seems to imply that there is already a policy against such ventures. But that is far from the case. Foreign ownership of varying degrees is a feature of the mining industry. Iron ore is but one of many segments of the mineral extraction industry where the foreign ownership norms have been considerably liberalised. So, why should the norms be restrictive in this case alone?

Then there is the argument of value addition in the domestic economy. It goes without saying that it would be ideal if domestic value addition can be achieved using the abundant iron ore available in the country. But to expect that this would happen through policy diktat is to ignore the realities of the market place. The policy presumes that India is so dominant an iron ore exporter that its decision to turn off the tap on such exports would result in mothballing of steel-making capacities in such countries as China, Japan and South Korea (destinations of India's iron ore) and creation of equivalent capacities in India. India is not a dominant exporter nor are target countries waiting to be trampled over by India's aggressive iron ore export policy. Nothing can be farther from truth. So what does a restrictive export policy achieve except allow the Commerce Ministry mandarins to play God?

The value addition argument can also be taken to absurd lengths. It looks beguilingly simple to argue that Indian iron ore should be used only by the domestic steel industry. But why stop with that? Why not, for instance, extend it further to say that domestic steel should be used to make auto-components and those parts should be used to make all the automobiles that a global market needs? It does not have to stop with that. Steel is used in a variety of other applications. Plants that make cement, fertiliser, etc., require fabricated steel structures. Theoretically, therefore, these too should be manufactured in the country. In short, the country should become the manufacturing hub of the whole world. But that is not how competitive advantage among nations is supposed to work. Considering the contradictions the most charitable explanation for the Commerce Ministry's insistence on preventing Posco from setting up its own mining infrastructure for export is that it is aimed at preventing cannibalisation of the existing market for MMTC's export of iron ore. But, then, public policy should work for the common good of the nation and not for the welfare of one undertaking, even if it is in the public sector.

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