In case the proposal was not dropped, 5% increase in the royalty rate coupled with 15% increase in the freight rate by the Ministry of Railways will increase further the cost of production of steel making and will push the inflation upward which shall have cascading affect on the Indian economy at large.
In a note submitted to the Finance Minister today, ASSOCHAM has stated that while the royalty rate on iron ore in important mining countries such as in China and Brazil the rates were only 2% of sales, Queensland 2.7% advalorem, South Africa 3%, New South Wales 4%, Victoria 2.75%, Western Australia beneficated ore 5%, fines ore 5.625%, lump ore 7.5%, South Australia 3.5%, while in India the rates of royalty were already 10%, highest in the world.
The chamber Secretary General Mr. D.S. Rawat said, setting up an integrated steel plant and development of mining projects are high risk investments as they have a long gestation period and require large investments in exploration and other development activities before commercial production can begin. Therefore, the Steel industry should be incentivized by ensuring the availability of secure supply of raw material at appropriate price.
The royalty on iron ore, until August 2009 was based on Rs/ton basis; subsequently the rates were changed to 10% of sales price. Prior to the changes, royalty was in the range of Rs.8 to Rs. 27 per ton, depending upon the quality of iron ore.
Mr. Rawat said, India is the highest taxed country amongst major iron ore producing regions with the proposed royalty rates. Brazil, the largest iron ore producer with a domestic steel production comparable to India, has a royalty of 2 per cent. Similarly, Australia has a royalty of 2.7 to 7.5 per cent (depending on ore type). Even South Africa has a royalty of only 3 per cent and, therefore, there is strong case for not further burdening the industry and consumers to add avoidable inflation.
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