June 28, 2013
Industry News

India’s Battle For Fair Mining Rates

The Federation of Indian Mineral Industries (FIMI) is calling for iron ore royalties to be lowered from 10% to 7.5% to help encourage growth in the industry.

India’s Mining Industry Resists Proposed Iron Ore Royalty Hike

India's mining sector is vehemently opposing a proposed increase in iron ore royalty rates from ten percent to fifteen percent. Industry players argue that such an increase could severely impact the revenues of small mining units. In an unexpected twist, they are now calling for a reduction in the royalty rate for iron ore to 7.5% in a bid to address unviable production costs.

In a significant "note of dissent," The Federation of Indian Mineral Industries (FIMI) has expressed its concerns about the potential hike in iron ore royalties. FIMI believes that the increase would not substantially benefit the state's revenue, as it would inevitably lead to a reduction in net production.

FIMI states, "Any increase in royalty will result in a phenomenal rise in prices. This will lead to marginal-grade mines ceasing production, impede investments in new technologies, and hinder the development of low-grade mineral resources. Lessees will opt to mine higher grades, leaving low-grade minerals untapped. This decline in production is likely to negatively affect the state's net revenue."

The recommendation to raise iron ore royalties originated from a study group established by the Mines Ministry in 2011. While the study group proposed the royalty hike in a preliminary report, it has remained committed to this recommendation since its inception, aiming to boost state revenue.

FIMI emphasizes that "raising royalties does not guarantee higher revenues. The study group's draft report has focused solely on increasing royalty rates as the primary revenue-boosting measure. However, increasing royalty rates will exacerbate the situation. Instead, they should be reduced to 7.5 percent to encourage industry growth."

India's mining sector has already witnessed significant layoffs and the closure of numerous small mining companies. FIMI is concerned that a higher iron ore royalty rate could further exacerbate industry challenges.

Moreover, due to stringent export policies, the iron industry in India incurred losses exceeding $17.5 billion in foreign exchange between 2010 and 2013. FIMI also contends that the proposed increase in iron ore royalties would only widen the trade deficit with China.


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