Karnataka urges duty hike on imported iron ore, pellets to aid local miners

State chief minister H D Kumaraswamy writes to PM Modi citing pile of inventory due to poor response to mandatory e-auction of these items of raw material

The Karnataka Government has asked the Centre to increase import duty on iron ore and iron ore pellets in order to protect domestic miners. The state has said it lost around Rs 6 billion due to high imports by local steel manufacturers.

The development comes against the backdrop of increasing inventory with the miners, due to high imports. Karnataka is the country's third largest producer of iron ore with an output capacity of about 35 million tonnes.

In a letter to the Prime Minister, Karnataka Chief Minister H D Kumaraswamy said the status of Karnataka's iron ore sector is unique, with the Supreme Court capping annual production and allowing sales to end users only through e-auction. This has led to situation where huge quantities put up on the online auction platform remain unsold.

"We see that domestic steel companies are importing huge quantities of iron ore (instead of buying from local miners)," said the Chief Minister. 

"The excessive import of iron ore is not only having a negative impact on the current account deficit, but is also hitting the domestic iron ore production. This is also defeating the purpose of the Make-in-India programme," he said.

Iron ore imports by India reportedly touched 1.02 million tonnes in October 2018 from 490,000 a year ago, an increase of 109 per cent. This year till date, Karnataka steel producers have imported more than 4.5 million tonnes, according to industry sources.

Up to October 18, Karnataka e-auction achieved sales of 14 million tonnes as against 20 million tonnes (which came on to the e-auction platform), to fulfil an enhanced environmental clearance of 35 million tonnes. 

While prices in Odisha and Chhattisgarh are up 36 per cent and 20 per cent, respectively, and imported iron ore prices have risen 24 per cent between January and October this year, Karnataka has seen a four per cent reduction as almost 80 per cent of iron ore fines in the state is bought by a single large steel producer, which has curtailed procurement from the state and is importing at a much higher price.

One of the main reasons, according to the industry, for the increase in iron ore imports is very low duty of 2.5 per cent, which encourages the steel industry to go for import rather than local iron ore. Present import duty is 2.5 per cent for all grades and for both, iron ore fines and lumps, while the export duty is 30 per cent.

Officials from steel companies in the state have said that higher pricing and lower quality are forcing them to import from outside Karnataka.

The unsold stock may lead to closure of mining operations. While the state is suffering loss of royalty of 15 per cent of sale value, the District Mineral Foundation (DMF) is losing 30 per cent of royalty, and 10 per cent contribution to a Special Purpose Vehicle, which was floated to develop social infrastructure such as education and health facilities in mining areas.

The local people who are directly and indirectly dependent on mining will lose their livelihood, Kumaraswamy said. 

"The state has already lost more than Rs 6 billion during the last fiscal and the current fiscal because of import of iron ore," the Chief Minister said, and requested the Prime Minister to intervene to suitably raise the import duty on iron ore and pellets.