National Mineral Policy 2006 - Department of Mines

IMPACT ON DOMESTIC IRON ORE PRICES OF POSSIBLE BAN ON EXPORTS7.55 The Committee found substance in the argument of the mining industry that a ban onthe exports of iron ore would have an adverse impact on domestic prices of the commodityand, consequently, on the development of iron ore mining as a whole. Economic theory tellsus that if exports are restricted leading to excess local supplies, the price will fall to the pointwhen marginally profitable units may shut down. In the case of iron ore, as in other minerals,the adverse consequences of a ban on exports can be even more far-reaching as it wouldaffect prospecting. The Committee feels that it would not be appropriate for government tomake a trade policy intervention that increases the profitability of one sector and lowers thatof another, and that too when the steel industry is earning high profits. Restriction on exportsof any mineral would constitute a further disincentive for the flow of FDI into the miningsector, at a time when the country needs it most for exploration using the latest technologyand also for efficient mining operations. As mentioned earlier, the economics of mining is alittle more complicated than that of industry in general, because investment for miningoperations can flow only after success in prospecting, and prospecting itself needs finance inthe nature of venture capital with the appetite for risk. Mining itself is a long-term operationof 20–30 years with a gestation lag of more than two to three years. An investment of Rs 100crore is required for mining one million tonnes per year. For meeting the requirement of thedomestic steel industry, which is expected to produce 110 million tonnes of crude steel by2020 and needs 175 million tonnes of iron ore (as against the current requirement of about 64million tonnes), the Committee estimates that fresh investment in mining of about Rs 12,000crore would be required. While this could come from the indigenous mining community itwould also need to be supplemented by FDI. The Committee is of the view that imposingfurther restrictions on exports would send a wrong signal to prospective investors in miningand would make the target of 110 million tonnes of steel production unachievable. Investorslike freedom to seek returns to their investment from all markets, both in the country andabroad.IMPACT ON EMPLOYMENT OF POSSIBLE BAN ON IRON ORE EXPORTS7.56 Iron ore production in India in 2003–04 was 122.84 million tonnes (pre-revised:120.60 million tonnes). Of the total production, 44.97 million tonnes was used by indigenoussteel units to produce 34.25 million tonnes of crude steel. Of the balance, 62.57 milliontonnes was exported and 15.30 million tonnes remained surplus. For 2004–05, iron oreproduction was 142.71 million tonnes, out of which exports were 78.14 million tonnes.164