The trade ban is suppressing the growth of the sector and has had a have significant impact on the industry and the public exchequer, the industry body said in a statement. The restrictions on sale of iron ore in Karnataka were imposed by the Supreme Court keeping in mind the situation prevailing in 2011-12, when mining operations had come to a complete halt in view of prohibitory orders of the apex court. As per estimates, the gross loss over a 10-year period to the state of Karnataka due to the ban on iron ore exports is estimated at Rs 29,058.8 crore.
The rest of India is exporting iron ore as per the EXIM policy of Government of India thereby ensuring fair revenue to the State Exchequer including foreign exchange, the FIMI statement said. As per the data available, the total exports in 2019 from other parts of India amount to 10.34 million tonne (MT) of fines and 1.16 MMT of lumps.
There is a surplus of 5.19 MT fines arising due to additional production from auctioned C category leases and expired leases in the state. Hence, an alternative market is urgently required since surplus iron ore may remain unsold even if the entire domestic demand is met from leases in Karnataka and without recourse to material from outside the state, the statement added.
At present, the value of iron ore which is consumed captively, is derived from the IBM prices. The huge pressure on the lessees due to large scale imports (sometimes at higher prices than local ore) has forced lessees to resort to distress sale (since the iron ore remained unsold for many months and in some cases years). Consequently, IBM index price for Karnataka is low. From Jan 2018 to May 2019, iron ore prices have gone down in Karnataka by -18.7 %, while IBM prices for Odisha and Chhattisgarh have only marginally reduced by -2.7% and -7.7% respectively.
The reduced price of iron ore sold in e-auction, also has a direct impact on levies to be paid to the state of Karnataka since the same are fixed, ad valorem and on the basis of the sale price. The state’s revenue is 30% of the sale price. Hence, the recovery of true value will substantially enhance the revenue of state exchequer, according to FIMI. Pertinently, revenue at the aforesaid rate will accrue to the state even on export. On the other hand, where ore is imported by consumers in Karnataka, the state earns only 2.5% import duty, the mining body further pointed out.
In 2018-19, approximately 6.67 MT of iron ore was imported into the state, as a substitute for locally produced iron ore, thereby leaving unsold stock in mines and causing loss of revenue to the state of Karnataka. These imports have also affected the sale of 8 MT of old stocks, the statement added.