Economic Impact of Export Restrictions and Iron Ore Shortages in India – Part Three

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MetalMiner welcomes guest contributor Rahul Jalan, a Chennai-based senior research analyst in metals for Beroe, Inc. who tracks the global steel and rare earths supply chain and analyzes global procurement developments to help develop procurement solutions for the company. Beroe specializes in providing procurement intelligence for a broad swath of industries, enabling buyers’ decision-making.

We’ve given an overview of the Indian iron ore and steel industries’ challenges due to bans on illegal ore-mining and a timeline behind the regulatory activity promulgated by India’s Supreme Court. Here’s how the financial gains and losses play into the situation:

By The Numbers

Steel and other iron-based industries have invested about INR 75,000 crore (US $15.6 billion) in the landlocked Bellary-Hospet region due to the abundant availability of iron ore in this region. (Ed. Note: “crore is Indian notation for 10 million units, in this case, Indian rupees (INR). Hence, INR 1 crore is the equivalent to 10 million rupees.)

The government stands to lose about INR 10,000 crore (US $2.08 billion) as these industries pay excise duty, royalty and value added tax, and commercial banks could suffer an asset deterioration of up to INR 50,000 crore (US $10.4 billion). The negative economic impact of a continued ban on mining may bring the Indian economy to the edge of the avoidable precipice, which we have already seen in the recent Index of Industrial Production (IIP) and inflation data.

The impact may be just too large for the economy to absorb at this stage, when investors’ sentiment is already frail and global conditions are uncertain. The country’s target of reaching about 200 million tons by 2020 likely won’t happen easily if the proper mining regulation is not implemented.

Tight iron ore supply has also forced many companies (who earlier planned huge investments in this region) including Tata Steel and POSCO to rework their investments for setting up steel plants in Karnataka.

The transportation sector (both railways and roadways), which handles more than 50 million tons of iron ore, is completely dried up in the Karnataka region and may lose more than INR 6,500 crore (US $1.36 billion) in revenues, if the ban remains for a long time.

–Rahul Jalan

Comments (5)

  1. Nanda Gopal says:

    The article incorrectly shows the above figures as USD million.
    1 million USD = 5 crore INR
    1 Billion USD = 5,000 Crore INR.
    Therefore,
    INR 75,000 crore = (US $15.6 BILLION)
    10,000 crore (US $2.08 BILLION)
    INR 50,000 crore (US $10.4 BILLION)
    INR 6,500 crore (US $1.36 BILLION)

  2. tberezowsky says:

    Thanks for the note, Nanda. We made the necessary corrections.

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