Responding to concerns from environmental groups, domestic steel businesses, and manufacturing houses, the federal government had imposed an export duty of Rs. 300 per ton but Chinese importers are boycotting Indian ore demanding exporters absorb the duty. Therefore, observers say that iron ore exports to China valued at USD 5 billion are in jeopardy.
China currently imports ore from Australia, Brazil, South Africa, and Indonesia but Indian ore is one of the best in the world and although there are other sources for ore, the cost of import from distant South America or Australia is expensive. Nearly 80% of India's ore export goes to China. Chinese importers also claim that Indian exporters cannot deliver the "assured quality" of ore and their boycott they say will affect the Indian mining industry and lose an "important export market."
India is targeting to produce 165 million tons (mt) of iron ore in 2006-07 with exports of close to 100 mt. China alone will consume 75 mt of this ore. The Federation of Indian Mineral Industry (FIMI) Rahul N Baldota says that the government export tax proposal will "reduce exports drastically by 50 per cent" this year and cause a revenue shortfall of USD 2.5 billion. While the government plans to collect Rs. 3000 crore from new levy, it may end up losing up to Rs. 2,500 crore because of loss of earnings from railways, ports, and state government royalty. FIMI representatives are to meet the Finance Minister P. Chidambaram and lobby for a withdrawal of this duty.
While participants of the FIMI organization may end up with a loss of revenue, it is disingenuous to argue that the nation will lose revenue. After all, because of the rapidly growing economy, India needs more and more steel and hence instead of exporting raw materials as FIMI wants to, it better for the nation to encourage more domestic steel industry. Besides, if the Chinese importers feel that Indian exporters do not meet quality requirements, what is the point of dropping the export duty? If their public protestations are to be believed, they would rather get their ore from somewhere else.
India should call the Chinese importers' bluff and reject the FIMI demand to drop the export duty. Not only will the nation save quality ore for domestic growth but it will also ensure that there is no over-exploitation of a limited and precious resource for the benefit of a few.