Tuesday, February 26, 2008

Depriving Goa

Depriving Goa

Budget is not only an exercise of fiscal management, but for a developing country like India it is also a mechanism to provide a sustained thrust to the growth process. But the proposal of the Union Finance Minister, Mr P Chidambaram to levy export duty of Rs 300 per tonne on export of all grades of iron ore certainly goes against the budgetary objectives. How could Mr Chidambaram come out with this proposal when he is aware of the nature of the impact his proposal would have at the micro-level growth in a state like Goa? What is really intriguing is Mr Chidambaram has referred to the recommendations of the Hoda Commission to justify his action on the plea of conserving country’s resources and to garner more revenue. In sharp contrast the Hoda Commission has recommended an export duty only for high grade iron ore, that is, iron ore with above 65 per cent Fe content, in lumps only. Moreover the commission does not prescribe any urgent measures to impose any quantitative restrictions on exports: instead it observes that the positions should be revisited after 10 years.

There is no doubt that the budget document does not reflect correct ground realities or real intentions of the government. The share of high grade iron ore to the total iron ore production is not substantial. Obviously any move to raise the export levy would be inflicting injustice to the exporters of the low grade iron ore. Low grade iron ore is not at all used by the domestic steel industry. Once this export duty is levied, low grade iron ore export would turn an unviable business and mineowners and exporters would be left with no other alternative but to disband their business! Obviously it would defeat the government motto to earn more revenue!!

In the era of reforms when other industries are making good profits, why only the mining industry is targeted to collect additional revenue in the form of export duty ? How could it overlook the fact that the cost of low grade iron ore (below 60 per cent Fe content) is below Rs 300 per tonne? Once the export duty is levied the ore prices would go upto $95 per tonne in comparison to $90 a tonne global rate for iron ore. In the existing situation why any country should bother to purchase 26 million tonnes of ore extracted from Goa every year?

No government action could be devoid of a rationale. Since there would be no buyer, the ore would have to be dumped!. It would also have an adverse impact on the tax collection from the state and the employment scene. The Finance Minister ought not to forget that while more than 2 lakh people are directly dependent for their economic sustenance on the mining industry in Goa, it also caters to many ancillary activities. The manner in which the matter is being handled gives the impression that some forces opposed to the interests of Goa are behind it since 60 per cent of the ore is exported by Goa alone to steel companies of Japan, China and South Korea.

It is worth mentioning that most of the big Indian steel producers possess huge captive resource or procure high grade ore but for hiding their inefficiency they have been blaming the higher input cost even though it is lower in comparison to China, Japan, and South Korea. India has huge ore resources, but why is the steel production less than 50 million tonnes? Mr Chidambaram must ensure that the lobby of steel sector which intends to control the ore production does not succeed in its mission.

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