Should exports of iron ore be banned?

Even the steel minister favours a ban, but if value addition is to be the criterion, it has to be applied to other areas like auctioning of 3G spectrum.

J Mehra, Director,
Essar Steel Ltd

The government will get Rs 55,000 crore of taxes from steel production versus just Rs 352 crore from iron ore exports of an equivalent amount.

Before one gets into a debate on whether India should go on exporting iron ore or not, one needs to understand the elementary difference between the business of exporting the ore and using it at home to produce steel. Unlike many other manufacturing industries, the steel industry has very special dynamics. While the conversion of iron ore into steel generates a fabulous amount of revenue to the local governments, employment and a great degree of value addition, it kick-starts a similar chain in so many downstream industries as well.

Each tonne of exported iron ore from the mines of Bailadilla in Chhattisgarh, Bellary in Karnataka or any other mine, leave behind just Rs 8 to 27 as "royalty" for the respective state government. On the other hand, the state exchequer gets at least Rs. 5,000 as first-step taxes on each tonne of raw steel produced in a local plant. (It takes about 1.6 tonne of iron ore to produce a tonne of steel.)

Even going by the already outdated estimates of the Indian Steel Policy-2020, which aims at producing 110 mn tonnes of steel by 2020, this difference in government income from taxes on steel production will come to Rs 55,000 crore as compared to just about Rs 352 crore through royalty (at an average rate of Rs 20 per tonne) for exporting an equivalent 176 mn tonnes of iron ore required to produce this much steel. In real terms, the steel industry generated Rs 15,500 crore tax revenue and 20 lakh direct and indirect employment as compared to Rs 312 crore of royalty and 1.35 lakh jobs by the entire iron ore mining industry during 2005-06. The Indian steel industry hopes to surpass the expected 2020 levels of production by 2012 itself.

At best, India has ore reserves of 23 bn tonnes. Out of this, over 10 bn tonnes are in the Western Ghats where the Supreme Court has already stopped mining in many areas due to the environmental vulnerability of these zones. A large part of the remaining 13 billion tonne reserves too is under forest cover. Therefore, even with the most liberal policies of exploitation, these reserves are not going to last beyond 30 years, or 35 at the best.

It may be interesting to note that while only a little above 60 mn tonnes of iron ore was used for steel production in India last year, 90 mn tonnes was exported during the same period. Out of this, nearly 80 per cent of exports went to China which has 46 bn tonnes of iron ore reserves and happens to be the most potential rival of India in the world steel market.

The Indian steel industry's only advantage vis-à-vis its international competitors is the high quality of Indian iron ore. This compensates for high costs of energy, coking coal, interest rates and other financial costs. Losing our only advantage by allowing free exports to our own rivals is as good as committing hara-kiri. It is high-time we put a blanket ban on iron ore exports, to preserve India's long-term national interests.

Ajit Ranade,
Group Chief Economist, Aditya Birla Group

Allowing exports will encourage commercial mining and this will boost India's deposits "" in Australia, these rose 100 times in 50 years.

India is richly endowed with world class software talent. But almost all of it ends up as raw material to foreign firms, who benefit from increased productivity and great cost saving. Shouldn't Indian software firms first service the huge needs of Indian businesses and the government? Imagine the value added if only Indian software companies are forced to work on domestic e-governance and ERP! Similarly, what if auto components producers are told not to export, but to only add value domestically? These analogies may sound stretched, but opponents of iron ore exports are treading a similar line. The debate on whether to ban iron ore exports or not, should have been guided simply by: (a) data on reserves; and (b) a belief that commercial mining is a sector worth nurturing. But the actual debate is getting drowned by a cacophony of rhetoric.

India has 25 bn tonnes of iron ore, which at the current rate of extraction will last us for about 140 years. That includes both steel making and exports. This life span assumes no new finds and no new exploration. However in last two decades, with virtually no spend on exploration, our iron ore reserves have gone up by 7 bn tonnes. With appropriate incentives and policy, reserves could go up by much more. Australian iron ore reserves went up by 100 times in a span of 50 years. If we believe in auctioning scarce resources like the 3G spectrum, or oil and gas fields, why not apply the same logic to iron ore mines? If we want resources to flow into mine development, then being partial to captive mines sends the wrong signals.

Captive mines do not encourage smarter and deeper mining, but hide the true value in steel making. Globally, steel is manufactured closer to consumption centres, not near the mines. Today, 75 per cent of iron ore in India is produced standalone, and not by captive miners. Most of the ore that's exported is useless to domestic steel makers, since it is a by-product called 'fines'. Even captive miners sometimes export surplus ore, to evacuate fines. Discouraging exports will lead to a mountain of unused fines, becoming a potential environmental disaster. A fifth of steel in India is made with recycled scrap, which will only increase. India's goal of reaching 120 mn tons of steel in 15 years will require $40 bn of investment, not counting power and mines. Even then, this is consistent with an export of about 100 mn tons of ore. Actually given long term contracts, miners will prefer to sell ore domestically, rather than export, as they save on transportation costs. When software and even film-making have been accorded industry status, it is unclear why mining continues to get stepchild treatment, especially given its great potential in generating employment. A shining homegrown example of commercial mining spawning great prosperity is the birth of NMDC, with Japanese steelmakers' prodding, which has led to an investment of Rs 30,000 crore in Indian steel.

The views are personal.