Commerce Ministry Against Restricting Iron Ore Exports (16-Aug-2010)
The Commerce and Industry Ministry categorically stated on Monday that it was not in favour of restricting iron ore exports even as the Ministry of Steel and Karnataka government continue to press for a substantial hike in export duty on the commodity to discourage its exports.
'If iron ore exports are restricted, it would affect economic activities in remote areas where handling of iron ore is the main employment generating activity,' said the Minister of State for Commerce and Industry Jyotiraditya Scindia in the lower house of the Indian Parliament.
While the steel ministry has been arguing that restrictions will help curb illegal mining, iron ore producers opine that the government should try to curb the problem and not the business. Also involved in the whole matter is the steel industry which wants higher export duty on iron ore to ensure a cheaper supply of the commodity at home.
A hike in export duty on raw material helps the domestic consumers in two ways. First, taxing exports increases the domestic supply and hence lowers the price of the input to the local market, thus acting as a subsidy as the domestic producers who otherwise would be paying market price at which the raw material is available to international buyer. Secondly making iron ore costly for an importer, say China, will increase the cost of production for Chinese companies, thus lowering the possibility of dumping by world’s largest steel producer into the Indian market.
The government however is in a dilemma on the issue. Surging iron ore prices can push cost for steel companies, leading to rise in prices, which can further boost the manufacturing inflation that has been rising sharply in last couple of months. However, too much export duty and thus restriction of iron ore exports can impact the long term development of iron ore mining in the country, which ultimately will impact the long run growth potential of steel industry itself.
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