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CAD battle: Govt may facilitate metal exports, revamp coal policy

India’s coal imports in July was 13.4 million tonnes (mt), 33% higher than the 10.1 mt in the same month a year ago, even though prices rose from last year, data from natural resources and steel portal Oreteam shows. Photo: Bloomberg (Bloomberg)Premium
India’s coal imports in July was 13.4 million tonnes (mt), 33% higher than the 10.1 mt in the same month a year ago, even though prices rose from last year, data from natural resources and steel portal Oreteam shows. Photo: Bloomberg
(Bloomberg)

Steps to rein in CAD could include increasing exports of iron ore, steel and aluminium, and introducing reforms in the coal policy to decrease imports

New Delhi/Mumbai: After curbs on the imports of precious metals to address the growing trade deficit, similar measures are expected for other metals and the mining sector that account for a significant share of the shortfall.

A Barclays research report shows the contribution of the metals and mining sector, comprising items such as ore and minerals, iron and steel, coal and non-ferrous metals (but not precious metals), to the current account deficit (CAD) was $30.83 billion in 2012-13. The figure amounts to around 35% of CAD that stood at $87.8 billion on 31 March.

“The metals and mining CAD was a meagre $1 billion a decade back. A sharp drop in iron ore exports and the rising coal imports are contributing to the increase," said Chirag Shah, director, research, at Barclays Securities (India) Pvt. Ltd.

Measures to rectify CAD could include increasing exports of iron ore, steel and aluminium, while introducing major reforms in the coal policy so that imports can be decreased, Shah said.

The CAD has contributed to a plunge in the value of the rupee against the dollar, with an all time intraday low on Tuesday at 64.12 to a dollar.

India’s coal imports in July was 13.4 million tonnes (mt), 33% higher than the 10.1 mt in the same month a year ago, even though prices rose from last year, data from natural resources and steel portal Oreteam shows.

“People will still buy coal in this country as it will be very difficult to boost production," said Kalpit Dubey, an analyst at Oreteam.

The government cannot directly curb the import of coal as in the case of gold because most of it is imported for the critical need of power generation and industrial growth. It might, however, give a leg up to several of the reforms under consideration with the objective of boosting indigenous coal production in the long run.

“Amid the sharp currency depreciation of 1998, the government took bold measures to open up oil exploration to private companies," Shah said. “Can they do the same for coal now?"

A new policy for public-private partnership with largest producer Coal India Ltd is being drafted to enable private companies to partner with the state-owned miner and work to speed up production, coal ministry officials said.

In addition, Coal India is set to outsource more of its mines for development by private operators, a Coal India official said on condition of anonymity.

The mines ministry is pushing for a cut in the export duty for iron ore from 30%, arguing that tonnes of iron ore fines that Indian steel makers do not want must be exported to generate foreign exchange.

“The commerce or finance ministries are not in favour of exporting the raw material (iron ore) but it would be a knee-jerk reaction to improve CAD," said one official in the steel ministry, requesting anonymity.

The official said a cabinet note had been prepared seeking ways to boost iron ore export and that the cabinet panel on economic affairs would meet soon to consider it.

“There is a possibility they could cut the duty for certain grades of iron ore," said Prakash Duvvuri, head of research at Oreteam.

India’s steel firms are pushing exports this year as the rupee is in their advantage, but still, an executive at one company said Chinese and Turkish steel makers are able to match their prices of around $550-650 a tonne for finished steel.

“If the government reintroduces the DEPB (duty entitlement pass book) scheme, we will be able to give very big competition to the them," said V. R. Sharma, deputy managing director and chief executive officer, steel, at Jindal Steel and Power Ltd. Under DEPB, raw material imports do not pay duty.

Likewise, aluminium, where India is building large capacities, could see measures to help boost exports, Barclay’s Shah said.

However, a mines ministry official said there was no proposal at the moment to boost aluminium exports. He declined to be named.

Shah said facilitating iron ore exports was the most likely measure to be taken as its results would be felt faster on the trade front.

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