Commodities

Hike in iron ore export duty will hit export, hurt China

G. Chandrashekhar Mumbai | Updated on February 28, 2011 Published on February 28, 2011

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Ores are stored at Paradip port for shipment. (file photo): Ashoke Chakrabarty   -  Business Line

It was widely expected and Mr Pranab Mukherjee did not disappoint the domestic steel industry. In the Union Budget 2011-12, the Finance Minister proposed to raise the customs duty on export of all types of iron ore to a unified rate of 20 per cent ad valorem from the earlier 15 per cent on lumps and 5 per cent on fines export.

In order to encourage domestic value addition and export of fines in value-added pelletised form, he has granted full exemption from export duty to iron ore pellets. This is sure to provide a boost to pelletisation and help capture value within the country.

In recent years, iron ore exports have been in excess of 100 million tonnes and ensured foreign exchange earnings of about Rs 34,000 crore. After Karnataka banned exports from the State, there has been a slight slowdown in volume.

On the other hand, iron ore export prices have spurted and recently touched $200 a tonne.

The spot market for iron ore is expected to stay firm because of global supply disruption.

The latest hike in export duty on all types of iron ore will make the Indian material more expensive in the export market. China is going to be hit as a very substantial volume of shipments (over 90 million tonnes) from India are destined for Chinese shores.

Export volumes

Consequent to duty hike, a slowdown in export volumes is inevitable. If 75-80 million tonnes are exported after the duty hike and assuming price stays around $200 a tonne equivalent to Rs 9,000 a tonne, levy of 20 per cent duty would generate revenue for the exchequer in the range of Rs 13,500 crore to Rs 14,500 crore.

In the long-term interest of Indian mining, mine safety, environment protection and mine workers welfare, it is necessary to earmark of a part of this revenue for sector's developmental and welfare programmes.

The government should be complimented for using the tariff mechanism to discourage export of iron ore and at the same time raise substantial revenue.

The Finance Minister has now effectively put iron ore mining companies and exporters on notice.

They must now start working for meeting domestic needs in the coming years rather than be dependent on overseas markets.

This is a welcome step from the perspective of conservation of finite natural resources for domestic use in future.

In recent years, the country's steel production and consumption has been rising.

The strong positive correlation between economic growth and steel consumption is of course well known.

The National Steel Policy projections have been revised and by 2019-20, steel capacity would 295 million tonnes for which about 470 million tonnes of iron ore would be required.

India's iron ore resources are finite and are estimated at 2,500 million tonnes at present.

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Published on February 28, 2011
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