India has one of the largest iron ore reserves in the world. According to the available information India's iron ore reserves is around 22,000 million tonnes which will be sufficient for the next 150 years at the current rate of production of iron ore in the country. During 2005-06 India produced 147.27 million tonnes of iron ore. Out of this only 58 million tonnes were used for domestic consumption and the rest was exported. China is the main importer of iron ore from India and in fact India's exports (of iron ore) to China alone are far in excess of its domestic consumption.
Iron ores are exported under long term agreements (LTA). Recently the government entered into LTA with Japanese Steel Mills, POSCO, South Korea and Chinese Steel Mills for export of iron ores for a period of five years. The private sector companies do not require permission of the government to export iron ore with iron content less than 64 per cent. However, such companies who own mines are allowed to export iron ore fines having iron content of 64 per cent and above after meeting requirements of domestic consumers and the MMTC Ltd.
Even though iron ore price has increased steeply in recent times, government's revenue by way of royalty has not increased commensurately. This is so because royalty is charged on the basis of tonnage, irrespective of prevailing price in the market. Thus, while iron ore exporters are reaping windfall gains, benefit to the exchequer is negligible.
India has set itself a target of achieving production capacity of 110 million tonnes of steel by 2020. In other words the country's steel manufacturing capacity is set to increase threefold in coming years with a corresponding increase in iron ore demand. The required quantity of critical inputs such as iron ore, coking and non-coking coal has been projected as 190 mt, 70 mt and 26 mt against the present availability of 50 mt, 21 mt and 5 mt respectively.
Surprisingly, the steel ministry is still contemplating the export of iron ore in exchange of coking coal or for other investments in the country. It should be noted that to meet the shortage of one category of raw material, export of another important raw material is unjustifiable and the move would be against the economics of the steel industry. It is in the interest of the country that the export of iron ore should be gradually stopped altogether and the necessary capacity for utilising the same should be set up.
Presently India exports about 60% of its iron ore production and earns over US $ 4 billion. The dollar earnings are a very small proportion of overall merchandise exports but iron ore exports form a crucial element of our bilateral trade with China—48% of India’s total exports to China are of iron ore alone. India has long-term contracts with Japan and South Korea as well. Hence, it may be difficult to stop iron ore exports immediately.
Observations:
India’s ancient and glorious metallurgical traditions as evidenced through Wootz Steel that was world famous in the past and the building of the famous Iron Pillar in Delhi many centuries ago shows India’s metallurgical capabilities. The Indian mineral sector is undergoing a transformation, foreign companies are coming to India and Indian companies are venturing abroad. India is also actively seeking to develop sources of long-term supply of gold and diamonds in different parts of the world. Steel along with textiles, has played a pioneering role in modern India's industrialization and it is not surprising that the policy to be adopted on the industry's major raw material, iron ore, has become the focus of national attention. The country has been exporting iron ore for decades, including by the largest miner and exporter — the public sector National Mineral Development Corporation. These exports have been predominantly to Japan but in recent years they have gone to China also. The total export of iron ore touched Rs.13,650 crore in 2004-05. Historically, the policy on iron ore export has been conditioned by the limited domestic demand. However, India's demand for steel is expected to pick up on a long-term trend in view of the expansion of infrastructure, which involves construction, besides demand from the expanding automobile industry. Iron ore reserves, estimated to be 23.6 billion tonnes, may seem enough at the current level of consumption. However, they do not look all that comfortable when viewed against the long-term requirements, with per capita consumption of steel rising towards international levels. Under the circumstances, a re-look at iron export policy becomes necessary. An outright ban will not only be too drastic; it will also violate international trade rules, which bar quantitative restrictions (QRs) except in specific circumstances. Public policy should aim at discouraging iron export through such measures as the imposition of a duty on export of iron ore, so that investment in value addition by way of steel plants and manufacture of special steels is encouraged.
A parallel can be found in long-term policy on the leather industry. India has become a major producer and exporter of value-added leather products, including footwear, thanks largely to a ban over nearly three decades on the export of raw hides and skins and semi-finished leather. The ban has been substituted by an export duty following the abolition of QRs under World Trade Organisation norms. The Union Government would do well to adopt a similar approach in the case of iron ore. This must allow export of ores of quality that cannot be used within the country for technical reasons. It must also be sympathetic to the dependence of a large workforce, especially in Orissa, Madhya Pradesh and Goa, on iron ore export. As for international producers, nothing bars them from setting up steel plants in India and catering to what by all accounts will be a growing market.
India is among countries with large deposits of iron ore, Brazil topping the list. Comparing the two, Brazil's iron ore export policy was in the context of that country having a modest population and low steel consumption of 13-14 million tonnes, likely touching 20 mt at its peak. In contrast, India was home to 1.2 billion people, the world's second biggest population. Its potential steel demand over time was pegged at 300 million tonnes.
The issue then would not be the original size of India's iron ore reserves, but how long they would last against peak steel consumption rates. At 300 mt of annual steel demand, Indian reserves would last only 40 years. Last year, the country produced 123 mt of iron ore, of which 63 mt was exported. To consider further would be potential growth in Chinese demand for steel, which is currently around 300 mt. If the US with a population of 250 million people consumes 100 mt of steel, then China's 1.5-billion population should take its future demand to 600 mt or so. China itself was slated to add 200 mt of additional capacity, but that should be balanced with an estimated 100 mt that would be taken off as part of restructuring its steel industry, this point to continued demand in China.
By the end of the Eleventh Plan period (2012), India must take a strategic view that it will be a major exporter of steel and not of iron ore. As India moves to reach its goal of producing 100 million tonnes of steel locally, the availability of high-grade ore to the local steel industry has to increase. Exports would then not a feasible option. It is also necessary to conserve high-grade iron ore which, is at present, being exported in substantial quantities. Various stakeholders should come together and agree to a larger national perspective in this area so that value-addition takes place in India and employment is also generated in the country.
