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Mainstream, Vol XLVI No 22

Indian Iron Needs a Solid Steel Heart

Friday 23 May 2008, by Suvrokamal Dutta

Though India is one of the largest producers of iron ore in the world, it still has huge problems facing the industry. With rich iron ore deposits throughout the length and breadth of the country these deposits are on the verge of being looted by the MNCs and other foreign companies. What is required is a clear-cut, concrete policy to deal with iron ore mining as well as the iron and steel industry. The need of the hour is to save this industry from vested interest groups; corrupt bureaucrats as well as opportunist miners who are currently having a free run in this sector. The government should shape up the export and import policy in relation to the iron ore sector so as to defend our supreme national interest.

If one looks into the environmental side of iron ore mining in India, so far it has been a disaster. The latest publication from the New Delhi-based Centre for Science and Environment (CSE)—its 356-page Sixth State of India’s Environment Report, titled Rich Lands, Poor People—Is Sustainable Mining Possible?, says it all. Looking into the report one can well understand the depth of the problems faced by uncontrolled mining. The report says between 1950 and 1991, mining displaced about 2.6 million people—not even 25 per cent of these displaced have been rehabilitated. About 52 per cent of these displaced were tribals. For every one per cent that mining contributes to India’s GDP, it displaces three-to-four times more people than all the development projects put together. Forest land diversion for mining has been going up. So has water use and air pollution in the mining hot spots. An estimated 0.16 million hectare of forest land has already been diverted for mining in the country. Iron ore mining in India used up 77 million tonnes of water in

2005-06, enough to meet the daily water needs of more than three million people. Mining of major minerals generated about 1.84 billion tonnes of waste rejects in just one year 2006—most of which has not been disposed off properly. What is required is proper and stringent measures to be announced by the Government of India in relation to its mining policy so that the local environment of the mining area is thoroughly protected and the people displaced are not only fully compensated but also properly rehabilitated.

Another big problem before the iron ore industry in India has been the issue of iron ore export to China from India on a spot price basis that has hit the industry very hard. To overcome this basic problem the Indian Government has recently increased the export duty on iron ore and concentrate by Rs 300 ($ 6.78) per tonne, a move that many experts feel is an attempt to keep a check on China’s unlimited Indian iron ore imports. It is regarded by many as the first move by the Indian Government to conserve this scarce national resource. China’s Indian iron ore imports surged by nine per cent to 74.75 million tonnes in 2006, an increase of $ 4.83 billion, according to the statistics released by the General Administrations of Customs.

China’s soaring demand for iron ore has increased the prices by almost 300 per cent in the last one year in the international market. Iron ore, which commanded a price of US $ 52 in January 2007, is today ruling at US $ 145. Therefore, all the iron ore miners including NMDC are increasing the iron ore prices to match the international prices. On the back of the astronomical profits, iron ore exports have increased from 32 million tonnes in year 2000 to 94 million tonnes in 2008.

More than 50 per cent of the total iron ore production of India is today being exported. It is really shocking to see that the proponents of iron ore export are comparing the Indian economy with the Brazilian and Australian economies. We need to consider the basic differences while taking a cue for development from those economies.

This announcement of the government is also in tune with the latest national steel policy which has made a roadway taking into account the concerns of the Indian steel firms as well as for fulfilling the target area set for the production of home steel. Fuelled by a surge in the GDP growth, the steel industry in India is on an upswing. India’s rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, both nationally and globally, has seen the Indian steel industry grow at the rate of 10.

From the current levels of around 45 million tonnes, the Ministry of Steel has estimated that India would be producing 85 million tonnes by 2012 and 192 million tons of steel by 2020.

BUT the dichotomy between policy and practice is ironically widening. It is really an alarming situation that despite being the best location in the world for setting up steel plants, for the first time in its history, India has become a net steel importer in the current financial year.

India has just started its infrastructure development and would require huge quantity of steel in the next 10-15 years. In the absence of a developed steel industry, this development may not see the light of the day. Therefore, adequate steps must be taken right now to make the Indian steel industry more competitive in order to meet these challenges.

Mineral concession approvals given by the Central Government in the last couple of years has got extremely politicised. From 2001 to 2007, as per a report of the Ministry of Steel and Mines of the Indian Government, the number of approvals given to the steel-makers was 88 and for the merchant miners it was 172 and the total approvals for the same period was 260. This itself proves the strong lobby of the miners working at the government level which is pushing genuine steel-makers into the back foot.

Again, the voracious appetite of China for Indian iron ore has been one of the key factors for an unprecedented increase in spot FOB price which has increased from US $ 110 per tonne to US $ 150 per tonne in the last quarter ending December 2007. Iron ore is sold by all the merchant miners in India based on spot export price. This has impacted the cost of finished steel production by around US $ 70 per tonne during the last quarter. It is important to note that the iron price has increased from US $ 60 per tonne in March 2007 to US $ 150 per tonne in December 2007.

It is pertinent to point out that even NMDC has announced a price hike of 47.5 per cent with retrospective effect from October 1, 2007. The LTA price, which was Rs 1209 per tonne prior to October 2007, was increased to Rs 1794 per tonne. Even the steel manufacturers having a long term agreement with the NMDC are also adversely affected. Experts are of the opinion that the LTA price for 2008-09 too will be increased by over 50-70 per cent. This will further push the cost of steel production. It’s true that the production of home steel has been increasing with every passing year but the demand is rising rapidly as well. The total production of steel in 1994-95 was 17,821 million tonnes; it rose to 49,391 tonnes in 2006-07. However finished, steel production in 2008 is estimated to be at 38.05 million tonne with a growth of +6.6 per cent. But the demand for consumption for the same period would be at 39.1 million tonne with a growth of +11.3 per cent thus compelling India to become a net importer of steel.

However, in the recent Budget the government has made further announcements for more stringent fiscal measures so as to put further curbs taking into account the Differential Export Duty Structure and also putting a check on the greedy miners who export high grade iron ore as low grade ones by making manipulative invoicing so as to escape the export duty. Environmental norms should also be made more stringent so as to protect the fragile environment in the mining areas.

Nevertheless, a beginning has been made by the Indian Government lately. Yet a lot more needs to be done in relation to our iron ore mining policy. Still it is a good step taken. A small beginning has been made. After all, it is better late then never.

The author is a renowned economic and foreign affairs expert; he is the Chairman, Global Council for Peace, and Covenor, Debating India. He can be contacted at
e-mail: sk_dutta70@yahoo.co.in

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