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The government should review the budgetary proposal to hike royalty rate on iron ore to 15% from 10% as it will escalate cost of steel-making and push inflation upward, industry body Assocham today said in a note to the Finance Ministry.
Suggesting the government to review the budgetary proposal of raising the duty with a view to sustainable growth of the domestic industry, Assocham said the existing 10% rate levied on iron in India is already the world's highest.
"In case the proposal was not dropped, 5% increase in royalty rate coupled with 15% increase in 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 effect on the Indian economy at large," Assocham said.
The association said Brazil, largest iron ore producer with a domestic steel production comparable to India, has a royalty of 2%. Similarly, Australia has a royalty of 2.7 to 7.5% (depending on ore type), it said.
"Even South Africa has a royalty of only 3% and, therefore, there is strong case for not further burdening the industry and consumers to add avoidable inflation," Assocham 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, said its Secretary General D S Rawat.
"Therefore, the steel industry should be incentivised by ensuring the availability of secure supply of raw material at appropriate price," he said.
