A workable policy on iron ore should factor in conservation for future use as much as the need to export for strong socio-economic reasons.

The ongoing tussle over iron ore exports between the domestic steel industry, supported by the Ministry of Steel, on one side, and iron-ore miners and exporters along with the Ministry of Mines, on the other, needs to be sorted out quickly. While the steel industry is making out a case for tightening raw material outflows by imposing stiffer trade and tariff measures, the mining firms see no justification in the former seeking curbs on their business. While both arguments are valid, the dispute must be harmoniously resolved. The spat not only sends confusing signals to the marketplace but also ends up distorting prices and disturbs investment plans. Maybe it is time the Prime Minister himself intervened, to help design a policy that harmoniously takes care of the long-term interests of various stakeholders.

Admittedly, domestic resources of iron ore are not unlimited; therefore, conservation for future use is imperative. The pivotal role of steel in any country's economic growth is well known. Over the next 2-3 decades, when growth is set to traverse a rising trajectory, higher steel consumption is a given and, for that purpose, conserving the precious natural resource is a decision no one can argue against. However, the ground realities cannot be ignored either. Of the production of over 200 million tonnes of iron ore, domestic consumption is about 45 per cent (90 million tonnes) and exports constitute 50 per cent (a little over 100 million tonnes, a large part of it fines), leaving a small surplus. The domestic industry is well serviced and surely cannot absorb additional quantities of ore.

There is simply no escape from exporting fines for strong socio-economic reasons, including employment, environment protection and export earnings. However, in the coming years, with projected expansion in domestic steel capacity, larger quantities of iron ore will be required. Over the next 10 years or so, steel production is projected to expand to almost 300 million tonnes, for which close to 500 million tonnes of iron ore will be required. As raw material critical for the future cannot be frittered away now, the situation calls for a strategic approach that takes into account current compulsions and future needs. In the short term, instead of imposing quantitative controls on iron ore exports, tariffs alone should be used to regulate outflows. At the same time, mining firms should be on notice that, at some stage in the near future — maybe in a three- to five-year time-frame — tighter trade and tariff restrictions may be inevitable. Beyond the medium term, there is also the likelihood that iron ore exports may be squeezed thin by rising domestic demand. It is for experts to work out a suitable policy framework that factors in current socio-economic realities and future compulsions and is in the nation's best interest.

Related Stories:
High iron ore rates may price steel-makers out of the market
Export of iron ore lumps may drop 50% on duty hike
Govt plans export duty hike on all iron ore products
Iron ore exports surge 88% in Sept
Railways hikes freight for iron ore exports

(This article was published in the Business Line print edition dated June 19, 2010)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.