Fine move on iron ore

In a well-thought-out move, the Finance Minister has sought to address the country's ‘steel dilemma' in the latest Budget. Should we continue to export a finite natural resource such as iron ore or conserve it for the future? What to do with the 200 million tonnes of iron ore we produce while domestic demand at present is less than half that? What happens to mining companies and mine workers if exports are embargoed, as demanded by steelmakers? And, importantly, how does one address the adverse environmental impact of all the fines produced but not utilised? Unifying the differential export duty on types of iron ore (15 per cent ad valorem on lumps and 5 per cent on fines) at 20 per cent, the Finance Minister has effectively used the tariff mechanism to gradually restrain the outflow of this finite natural resource that is a crucial raw material for the domestic steel industry. In the process, the exchequer will benefit substantially, with a projected revenue flow of nearly Rs 15,000 crore a year, at current export volumes and prices.

It is commendable that the Government did not succumb to the domestic steelmakers' pressure to ban exports altogether. Such a move would have proved counter-productive as the steel industry is now in no position to absorb all the iron ore the country produces. At the same time, encouraging the export of value-added iron ore in pelletised form free of export tax is sure to help exporters realise higher prices from the overseas market. Importantly, the Budget has put domestic mining companies and exporters on notice that the liberal policy of iron ore exports would be progressively tightened in the coming years so as to conserve the natural resource for domestic use. As the Indian economy shows clear signs of sustained growth, steel consumption is sure to expand robustly, driven primarily by the housing and infrastructure sectors and, to a lesser extent, manufacturing.

Taking cognisance of the country's consumption needs of the industrial metal over the next ten years, the National Steel Policy has revised the steel production target for 2019-20 to 295 million tonnes. To meet the production target, 470 million tonnes of iron ore would be required, while the total availability is currently estimated at 2,500 million tonnes. It is desirable that a part of the revenue generated from export duty is earmarked for development activities, including greening of the mining areas, mine safety, mine workers' welfare, and so on. Following the new tariff regime, iron ore shipments can potentially slow down and steel companies here can, over time, look forward to sourcing the raw material at friendlier prices. In the immediate future, the global iron ore market is facing supply constraints from major origins and the duty shock imposed by the Indian Budget may well be absorbed by overseas buyers.  

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