Mumbai: A meeting of cabinet ministers last week on how to curb steel prices to fight the high levels of inflation in recent weeks failed to come up with any consensus decision, especially on a new tax on exports of iron ore, a key input for steel production, according the minutes of the meeting.
The meeting, held on 16 April, was attended by finance minister P. Chidambaram, commerce and industry minister Kamal Nath and mines minister Sis Ram Ola, and chaired by steel minister Ram Vilas Paswan.
While Nath and Ola argued against the tax on iron oreexports saying it would not help curb steel prices, Chidambaram insisted on the tax as additional revenues from it would help neutralize the effect of other fiscal measures proposed to bring down prices.
Labourers dig for iron ore at a Kalinga Mining Corp. mine in Kheonjar, Orissa. Ore prices in India have risen by about 35% in the past year, and are expected to climb further
Iron ore prices in India have risen by about 35% in the past year, and are expected to climb further on the back of several global steel makers agreeing to pay 65% more for iron ore to suppliers with effect from 1 April.
One suggestion going into the meeting argued for a 15% ad valorem export tax on all categories of iron ore, except on iron ore pellet as it is a value-added product made out of fines, according to a note issued ahead of the discussions.
The current export tax on iron ore is Rs50 per tonne for iron content less than 62%, and Rs300 per tonne for iron content more than that.
According to the minutes of the meeting, a copy of which is available with Mint, Ola and Nath argued that the suggested tax would not help bring down steel prices. The mines minister said the cost contribution of iron ore to steel production cost is negligible, and that a higher export tax might have an adverse impact on the growth of the Indian mining sector.
Most big steel producers in the country have captive mines to account for a major part of their iron ore requirements.
Nath added that such an export duty on iron ore would substantially affect the volume of export of iron ore fines, leading to a rise in lump ore prices, which in turn could further fuel the increase in the prices of steel products.
But Chidambaram was adamant that the suggested tax on iron ore exports should be imposed since the other fiscal measures proposed by the ministry of steel, such as duty cuts and tax reductions, would lead to a substantial revenue loss to the exchequer.
The finance minister is of the opinion that to make the proposals revenue neutral, it is desirable to mop up additional funds from revenue-generating sectors such as iron ore exports. Chidambaram noted that in spite of the export duty levied on iron ore last year, there was no reduction in the volume of iron exports. Both volume and revenue collections on account of iron ore exports have shown substantial improvement, he said.
The finance minister allayed the fears of both the mines and commerce and industry ministers, and said an ad valorem export duty on iron ore, if imposed, would be applicable for only a short period of time.
He also said that if any perceptible decline in the volume of iron ore production, exports or employment was observed during this period, the fresh tax would be rolled back.
Paswan has since written to the Prime Minister apprising him of the status of the discussions and the issues that were raised by the ministers, said an industry executive in the know of the discussions, but who did not want be identified.
The measures that have been put on the table during the past couple of weeks include removal of a 5% import duty on mild steel and pig iron and vital raw materials; a reduction in excise duty on thermo-mechanically treated bars and structurals to 8% from 14%, and a similar reduction in excise duty on input material for these products.
The suggestions include the abolition of the countervailing duty on the import of long steel products and a restriction of export of long steel and semi-finished products.
Another proposal is an advanced licensing scheme for the export of value-added products, suggesting that export of value-added flat products such as tubes and pipes, cold-rolled products, galvanized products and coated products may be allowed subject to mandatory import of input materials such as hot-rolled coils.