Falling Rupee: Blessing for MIners?

By Cleofato A Coutinho
24 September 2013 23:28 IST

The Hon’ble Supreme Court which granted an exparte ban on all mining operations in the state of Goa is yet to take a final call. But suddenly there is a glimmer of hope for those (including the government of Goa) who were campaigning for lifting of the Supreme Court ban, not due to any regulatory mechanism to protect the environment being in place. Neither the Central Government nor the state government has worked out a formula on ‘sustainable’ mining for this tiny state or a monitoring framework of how the local people shall benefit from mining has been worked out. The falling Rupee against the dollar seems to have come to the rescue of the miners.

The current account deficit touched a historical high due to high import of gold and petroleum products and fall in the iron ore exports has only added to the widening gap. The issues raised by the petitioners or the illegalities highlighted by M. B. Shah Commission have paled into insignificance due to the Prime Minister pitching for export of iron ore to breach the current account deficit. The government is desperate to raise foreign exchange and arrest the further fall of the Rupee.

That the central government shall play a crucial role before the Supreme Court can be gauged from the public stands of the Union Finance Minister P. Chidambaram and the Union Minister for Commerce and Industry Anand Sharma. The mines ministry is set to move the Supreme Court to seek relaxation in some of its orders on iron ore mining.. The commerce minister had confirmed that the central government would approach the Supreme Court to resolve the impasse on iron ore mining as the there is drop in iron ore exports.

The export of iron ore has been consistently coming down from a high of 117.4 million tons in 2009-2010. In the 2010-2011 it was 97.66 million tons which came down to 18.37 millions tons in 2012-20113. The Supreme Court ban in the Goa mining case is one of the major factors in the drop of iron ore exports as Goa was exporting nearly all of its annual output of more than 43 MT production. Goa’s contribution to India’s Steel Industry is negligible. In October 2012 the Orissa Government took a bold and a progressive step and banned the export of iron ore and ordained that the iron ore mining could be done only for captive use.

Of late the entire debate on iron ore is centering around export of iron ore and the falling Rupee. That the domestic steel industry has also suffered due to the shortage of iron ore following the ban in Karnataka is hardly spoken about. The iron ore production has come down from 218 MT in 2008-09 to 140 MT in 2012-13 due to enforcement of environmental and other regulatory measures.

 

The falling Rupees has rattled the Central Government in the election years and the commerce ministry has floated a cabinet note on reducing export duty on iron ore which is currently at 30% and affecting for both varieties of ore (lumps and fines). Mines Minister in fact has publicly committed to bringing down the export duty to 20%. The steel ministry and the steel industry is rightly opposed to the proposal of bringing down export duty on iron ore to facilitate exports as any relaxation would put the industry into a severe shortage of iron ore but the government believes that there is exportable surplus of iron ore that can be used to bring down the current account deficit. In a knee jerk reaction to augment the foreign exchange reserves, it has escaped the country’s attention that steel imports have jumped from 1% in 2011-2012 to 14.6% in 2012-2013 and the growth export of finished steel has slowed down to 14.3% in 2012 to 2013 against 32.56% the previous year.

The export duty on iron ore was raised to 30% in December 2011 to ensure the availability of ore to the domestic industry. At this critical juncture, any reduction of the export duty coupled with the current exchange rate shall only boost the momentum of exports depriving the domestic steel industry of the raw material.

As the central government is considering reduction of export duty to facilitate increase of export of iron ore, a Parliamentary standing committee on coal and steel has suggested increasing of export duty on iron ore beyond the existing 30% and even a total ban of exports with a view to conserve the ore for domestic consumption in the future. The committee on coal and steel in a report tabled in the Lok Sabha on 8th September 2013 has recommended that the government should take appropriate measures by further increasing the export duty beyond 30% and also suggested gradual reduction in iron ore exports to ensure that “this scarcely available national asset” is reserved for the growth of the country. In fact the committee has recommended total banning of the export of iron ore for the purpose of saving India’s steel industry in future. The standing panel’s report must be given due consideration.

The Steel Authority of India is in the process of enhancing its steel making capacity beyond its current levels and the country’s finance managers in their desperate hurry to augment the foreign exchange reserves must take not any steps inin making this country an importer of iron ore. Bartering away exhaustible national wealth for immediate short term gain would not be a step in the right direction. The right direction would be to increase our paletization capacity and using our national resource for our domestic industry.

 

 

Disclaimer: Views expressed above are the author's own.

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Cleofato A Coutinho

Cleofato Almeida Coutinho is a senior lawyer and one of the constitutional expert in Goa. A member of Law Commission of Goa, he also teaches at Kare College of Law in Madgao.

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