Will India Choose Steel or Iron Ore in its Budget Battle?

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In part one of this story on India’s budget battle, Sohrab Darabshaw explained how India’s Minister of Steel and Mining is caught in a tug-of-ore between steel and iron ore. This section details the arguments each industry will make.

India’s new Steel and Mines Minister Narendra Singh Tomar needs to tread carefully. He must recommend a path that makes economic and financial sense, but it also must not anger either of the two lobbies, steel or iron ore. While one issue relates to mining, the other, to steel. In the previous governments, such a conflict never arose since both were separate ministries handled by different ministers. In the new Bharatiya Janata Party (BJP) Government, while the ministries continue to remain separate, there’s one minister in charge of both, so therein lies the rub.

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The miners, inclined towards exports, hold the view that due to the paucity of ore, high duties have made exports not viable, resulting in job and revenue losses. The steel majors, on the other hand, cite the same iron ore shortage to prop up their case that India’s 30 percent duty on exports, imposed in late 2011, should be continued, stating that restrictions on mining of iron ore in the recent past had led to an estimated drop of 35 percent in India’s total annual output of ore, presenting a “grave challenge” within the steel industry.

Until recently, India was the third largest exporter of iron ore, but the combination of a series of mining bans and the export tax have dropped it a few nothces. Exports plummeted to just 14.42 million tons in 2013-14 compared to 117.37 million tons in 2009-10. During the period, India’s ore imports went up from 0.89 million tons to 5 million tons. For a while, India had turned into a net importer of iron ore.
The previous government also imposed a five percent export duty on iron ore pellets, an agglomerated form of the raw material. So, while industry association, the Associated Chambers of Commerce and Industry of India was of the view that the government should raise the export duty on iron ore pellets even further to safeguard the interests of India’s steel industry, the Pellet Manufacturers’ Association of India has demanded that commerce ministry remove the duty, claiming it was choking the industry and would stunt growth.
Anil Agarwal, Chairman of Vedanta, one of the world’s biggest diversified metals and mining companies, has supported the mining industry’s demand to reduce the export duty. In a tweet that he sent out, he said India could earn $10 billion if the government allowed the export of iron ore.
So how’s the Steel and Mining Minister planning to tackle the dichotomy? Insiders have told the media that he seems inclined to continuing allow the export tax to stand. When asked for his reaction, Tomar told news agency, the Press Trust of India (PTI), that a conciliation had to be reached on the two issues, and that his ministry was studying both demands.
Which is not saying much at all, is it?

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