Assocham urges govt against any increase in royalty rate on iron ore.

KOLKATA: The Associated Chambers of Commerce and Industry (Assocham) has urged the government against increasing royalty rates on iron ore, due to its scarcity in the wake of the mining crisis. The apex chamber has argued that the proposed hike in royalty from 10 to 15% will be detrimental to the interests of the domestic steel industry.

In his budget speech, the finance minister had proposed to revise the royalty rates on all minerals with that on iron ore proposed to increase from existing 10 % to 15% on ad valorem basis on the sale price.

Reacting to the move, Assocham secretary general D S Rawat in a letter date July 17, 2014 told union finance secretary Arvind Mayaram: "In the interest of the domestic steel industry, we request the government for not to increase the royalty rate on iron ore from 10% to 15%."

As per law, the royalty rates can be revised only after a gap of three years. The last revision took place in 2009. Till then, the royalty on iron ore was based on Rs/tonne basis. The rates were subsequently changed to 10% of sales price. Prior to the changes, Royalty was in the range of Rs.8 to Rs. 27 per ton, depending upon the quality of iron ore. Assocham has pointed out that India is the highest taxed country amongst major iron ore producing regions with the proposed royalty rates.

While Brazil, one of the largest iron ore producers with a domestic steel output comparable to India has a royalty of 2%, in Australia royalty rates vary between 2.7 to 7.5% (depending on ore type) and in South Africa it is 3%.

However, following the crackdown on illegal mining in Karnataka and Goa and the subsequent ban on mining activity in various states, iron ore production is yet to resume at full steam. This has led to a huge gap in demand -supply of iron ore in the country. Some large steel companies like JSW Steel have even had to resort to imports of iron ore. In its communication, Assocham argued that if royalty rates are hiked, the mining companies may pass on the additional royalty to the steel industry, which in turn will increase the cost of production of steel making and the inflation will further increase.

Coming on top of a 15% hike in freight rate by the Railways, any increase in royalty will be detrimental to the prospects of the domestic steel industry, the industry body pointed out. Since setting up integrated steel plants and development of new mining projects are high risk investments with long gestation period the steel industry should thus be incentivized by ensuring the availability of secure supply of raw material at appropriate price, the chamber said.

Source : economictimes.indiatimes.com