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Iron Ore Mining Overhaul Policy And Access To Ferric Resources

Date 09-May-2014
Subject Iron Ore Mining Overhaul Policy And Access To Ferric Resources

Amidst avoidable mudslinging and counter-allegations at the hustings in the ongoing polls, the Supreme Court of India has lifted the ban on iron ore mining in Goa after about one-and-a-half years, albeit with conditions.

The apex court has already removed some of its earlier restrictions on ferrous ore in Karnataka, which were put in place to clamp down on rampant illegal mining. And an interim court order to prevent excessive mining of the ore in resource-rich Odisha is expected soon.

The next government needs to thoroughly modernise and transform iron ore into a modern commodity with transparent practices and norms, and attendant prices that genuinely reflect international traded value.

Revamped iron ore mining and arm's-length prices would actually incentivise the domestic steel industry to produce value-added products, including for exports. And given our endowments of raw material and talent, we should really be aiming to be the world's largest steel exporter, particularly of branded high-grade steels, in the medium term and beyond.

We do need to get out of the cycle of periodic judicial crackdown on illegal mining, with the political executive in the states preferring to turn a Nelson's eye to wanton malpractices and illicit diversion of ore.

Such transgression and the routine cutting of corners come at a huge national cost, not just as loss in current revenues, royalty, cess and other payments, but can also lead to serious environmental consequences as well. And given that there remains a huge infrastructure deficit between available highgrade ferrous ore, modern steel plants and the main markets for finished steel, it makes illegal mining all the more regressive and corrupting.

We need to blot out such practices for good, with both the states and the Centre joining hands when it comes to oversight and supervision. The way ahead is to levy a nominal central excise duty on iron ore mining, as is already in place for coal. The objective ought to be not so much to boost revenue collection as to increase multi-stakeholder oversight.

In any case, value-added indirect taxes on production and sales do already provide for tax offsets for levies paid earlier in the transaction value chain, so the actual burden of taxation of ore would be quite minimal. The next government clearly needs to convince the states concerned that central excise on ore is an idea that needs to be purposefully implemented without further ado.

Next, opacity in the pricing of ferrous ore needs to go. A while ago, the Machindranath committee had suggested that the rates reflect quarterly import prices paid by Japanese steel producers, who remain the world's most competitive exporters. Such benchmarking does make ample sense, certainly to begin with.

The quotes can then be compared with the rates published by the Indian Bureau of Mines to keep better tab of commodity scarcity value. We do need proper pricing of ore not just for targeted funds for social development, but also to egg on downstream industry to rev up value addition and customisation to improve margins.

Ultimately though, instead of rather administratively determining ore prices, we need a thriving market for iron ore options and futures at home. Markets in the region are already quite mature. The Singapore Exchange, for instance, already accounts for some 90 per cent of international iron ore derivatives clearing.

There may be a case for captive iron ore mines for new steel producers setting up plants in remote areas lacking infrastructure and linkages. However, such arrangements surely need to be time-bound and temporary, say, until the unit has fully depreciated plant and machinery.

It might be perverse incentive to go for modular investments so as to rationalise captive access to ore perennially. But we do need proactive policy to have arm's-length prices for the ore, to garner revenues to purposefully tackle the umpteen social and developmental problems rife in mine-intensive areas.

We need to set up special purpose vehicles (SPVs) to channel resources and funds. To begin with, a part of the substantial export duty that the Centre now levies on iron ore exports, to make up for the loss in domestic value addition, surely needs to accrue to SPVs in directly affected blocks and districts.

Source : economictimes.indiatimes.com

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